Turning an initial capital of, say, $1000 into double that in half a decade amounts to a compound annual growth rate of nearly 15%. That's not easy to pull off, but it is certainly possible. The kind of companies that can register such returns are often corporations with leadership and plenty of room to grow in a vast industry.
Let's look at two companies that appear able to accomplish this feat: DexCom (DXCM -9.90%) and Etsy (ETSY 0.34%).
1. DexCom
DexCom is looking at a massive opportunity in the market for continuous glucose monitoring (CGM) systems. These devices allow diabetes patients to track their blood glucose throughout the day, allowing them to make informed decisions about their health. CMG systems tend to be superior to blood glucose meters that only measure patients' blood glucose at a specific point.
DexCom has become a leader in this field thanks to the G6, which it argues is the most connected CGM system in the world. But with 422 million diabetes patients worldwide (DexCom had an installed base of just 1.7 million people as of the end of 2022), there remains plenty of room for growth.
Here is how DexCom plans on making headway in the next five years and beyond. First, the company developed a newer device called the G7, which it first launched in Europe last year; the G7 earned clearance in the U.S. in late 2022 and just did so in Canada.
DexCom also came up with another CGM option, the DexCom ONE. One of the key selling points of this device is that it is cheaper than DexCom's other popular products. It could help attract more price-sensitive patients in certain regions and further jolt the adoption of CGM technology where it is lagging. Second, DexCom is pouring more money into advertising. CGM remains underpenetrated despite multiple studies showing its superior outcomes for diabetes patients.
DexCom is betting that at least part of the reason why that's the case is that the good news has yet to reach many patients with diabetes. If DexCom's efforts pay off, the company's revenue should continue growing at a good clip. In the first quarter, DexCom's top line increased by 18% year over year to $741.5 million. The company expects revenue between $3.4 to $3.515 billion for the entire year, which would represent a year-over-year increase of between 17% and 21%.
DexCom recently updated its long-range guidance. It now expects revenue between $4.6 billion and $5.1 billion for 2025, up from its previous projection of between $4 billion and $4.5 billion. DexCom won't stop there as it continues to grow its installed base of CGM patients. While there are no guarantees in life, the company's push in this market could yield outsized returns for its shareholders through the next five years and beyond.
2. Etsy
Etsy is an e-commerce specialist, an industry where competitors like Amazon and eBay, among others, arguably have more name recognition. But Etsy specializes in offering vintage, handmade, and rare items. For instance, the company sold custom face masks like hotcakes in the earlier pandemic days. Etsy's differentiator is one of the key reasons it can be competitive in this challenging industry and remain successful for years.
For one, word of mouth from trusted friends remains one of the best forms of advertisement. Customers who buy rare goods on Etsy that they couldn't find anywhere else will likely share that experience with those around them who are also looking for rare items. It also grants Etsy a flywheel effect; the more merchants selling vintage goods on its platform, the more consumers looking for them will flock to it, and vice versa.
It is true that Etsy's financial results haven't been great lately, partly due to the lingering effects of the pandemic years on its financial results. But also, the kind of goods that Etsy offers tend to be expensive, and we are still dealing with a challenging economy. In the first quarter, the company's gross merchandise sales (the total dollar value of orders conducted through its platform) dropped by almost 5% year over year to $3.1 billion.
Etsy's revenue increased by 10.6% year over year to $640.9 million, but that was due to the company's decision to increase its transaction fee last year. Still, the future looks bright for Etsy as it has built a solid competitive advantage, and there remains plenty of growth potential in the broader e-commerce industry.
The economy should rebound in the next half a decade, as will the company's GMS. Etsy should also make progress in its addressable market worth $2 trillion. It has only grabbed a tiny portion of this total. That signals a bright future for the company beyond the next five years, which is a good reason why investors should seriously consider initiating a position today.
