Medical devices specialist Tandem Diabetes Care (TNDM 2.16%) did not have a great year on the stock market in 2022. And so far, 2023 isn't proving much better, with the company's shares already down by 12% year to date.
However, many investors and analysts continue to have faith in the company, as evidenced by its Wall Street price targets of between $40 on the low end of the spectrum and $74 on the high end, according to Yahoo! Finance.
That implies an upside of as much as 106% over Tandem Diabetes' current share price of $35.86. Could the company turn things around and hit any of these goals within the next 12 months?
What's going on with Tandem Diabetes Care?
Tandem Diabetes Care is a healthcare company that focuses on helping diabetes patients, most notably with its t:slim X2 insulin pump. While this product's adoption has been on the rise over the past few years, helping the company generate increased revenue, Tandem Diabetes' growth rates have slowed considerably.
In fiscal year 2022, Tandem Diabetes' sales jumped by 14% year over year to $801.2 million. Here is how that compares to the past few years.
TNDM Revenue (Annual YoY Growth) data by YCharts
Further, Tandem Diabetes Care won't improve on this front in 2023. The company's sales guidance between $885 million and $900 million for the year implies revenue growth of roughly 10% to 12%.
To make matters worse, Tandem Diabetes Care isn't consistently profitable. In 2022, the company's net loss per share was $1.47, compared to net earnings per share of $0.24 reported in 2021.
On the positive side, Tandem Diabetes' gross margins, although slightly lower, have remained in the same range over the past few years.
TNDM Gross Profit Margin (Annual) data by YCharts
Still, the company will have to address the declining revenue growth rates and red ink on the bottom line to get back in investors' good graces.
The long-term view
Tandem Diabetes' guidance for the fiscal 2023 does little to improve the chances that its stock price will match Wall Street's highest price targets this year. But for investors looking beyond the next 12 months, there are good reasons to take a second look at the company.
First, consider how successful Tandem has become. The company had an installed base of 420,000 patients as of Dec. 21 -- representing a 29% year-over-year increase -- and that isn't an insignificant number.
Tandem Diabetes Care has achieved this feat even with plenty of competitors in the insulin pump market. Part of its success is simply that its insulin pump offers incredibly valuable features that many others don't.
Consider the company's control-IQ technology, which allows diabetes patients to automate insulin delivery by pairing the t:slim X2 with DexCom's G6 continuous glucose monitoring (CGM) device to avoid going outside their target range. Clearly, this makes their lives a lot easier. Tandem Diabetes Care reports that half of its customers are first-time pump users, and the other half switched from a competing device.
Then there are the multiple growth opportunities available to the company. Tandem Diabetes Care is looking to integrate DexCom's newest CGM device, the G7, which only earned clearance last year, as well as Abbott Laboratories' FreeStyle Libre CGM franchise. DexCom and Abbott are the two leaders in the CGM market, so being able to integrate the t:slim X2 pump with the newest devices marketed by both companies could attract even more patients to Tandem Diabetes Care.
Here is one more growth opportunity: the low penetration of insulin pumps. Many eligible patients continue relying on painful daily injections to take their necessary insulin. Tandem Diabetes Care estimates that pump penetration stands at 35% in the U.S. and between 10% and 20% in markets outside the country.
The company is well on its way to achieving its goal of an installed base of 1 million people. Given that t:slim X2 users need to order supplies regularly (such as cartridges that get replaced frequently) and are eligible to renew their pumps every few years, a growing installed base will lead to higher recurring revenue from these other sources.
An intriguing option, but invest wisely
In my view, there is an excellent chance that Tandem Diabetes' revenue growth will pick up, especially as it continues to introduce new technologies. The company is working on a successor for the t:slim X2, among other things. Also, the number of people with diabetes is unfortunately rising, which will translate to an even larger target market for Tandem.
With that said, the bottom line remains an issue investors should keep a careful eye on, especially those looking beyond the next year. I do not anticipate Tandem Diabetes Care matching a stock price near Wall Street's most aggressive price target within the next 12 months. But if the company can continue to execute its master plan and start recording consistent profits, it could deliver market-beating returns over five years and more.
