Diabetes care and aesthetics. Those are two areas of healthcare that should provide investors with ample growth opportunities in the long run. Two companies that are in solid positions to capitalize on that potential are DexCom (DXCM -9.90%) and InMode (INMD 0.70%). While both of these stocks are struggling this year, down more than 30%, here's why they may not just rally but potentially even double in value.
1. DexCom
DexCom makes continuous glucose monitoring (CGM) devices that help people with diabetes easily track their glucose levels. It can make life much easier for millions of people around the world. The company has some attractive growth potential as even people without diabetes could benefit from the devices by adjusting their eating habits if they learn they have high glucose numbers.
Analysts at Grand View Research project that the market for CGMs is expanding at a compound annual rate of 4.4% and will be worth $11.2 billion by 2030. And in the long run, the market may become even larger given the need to treat diabetes may increase.
One thing that is likely hurting DexCom right now is the rising popularity of weight-loss drugs. Wegovy, Mounjaro, and Ozempic (which isn't approved for weight loss but that has helped people lose weight) have been effective weight-loss treatments. And investors appear to be anticipating that those drugs could result in fewer people with diabetes and thus, less of a need for DexCom's CGMs.
But that would be a premature conclusion. For starters, the list price for one month's treatment can cost over $1,000 for these drugs, and many insurance companies aren't covering them. The risk for consumers is that they can potentially gain all that weight back if they stop taking the drugs. Plus, there are also side effects to consider which may hinder their growth potential. Investors appear eager to be buying into the hype surrounding Ozempic and weight-loss drugs in general, and that could be a mistake.
DexCom is a top name for CGMs, and there's still plenty of growth potential ahead for the business. It's far too early to suggest that weight-loss drugs will lead to a drastic reduction in diabetes cases. The company's sales are up 22% this year, and profits have also risen by 11%. Unfortunately, this fast-growing stock is down 30%, trading near its 52-week low. Although it's down now, this is a healthcare stock that definitely has the potential to double in value as the need to effectively manage diabetes isn't going away anytime soon.
2. InMode
Another stock that weight-loss drugs can be impacting is InMode. But InMode may actually benefit from people losing weight. The company provides minimally invasive procedures that can be alternatives to plastic surgery. The treatments can help tighten skin, which can be in high demand for people who have lost weight and have sagging skin.
But aesthetics in general can be a promising business, especially when the treatments are non-invasive. Analysts at Grand View Research project that the non-invasive aesthetic treatment market will be worth more than $190 billion by 2030, growing at an annualized rate of 15.4% until then. One opportunity analysts highlight is in women who are 50 years and older and who may be more concerned about their appearances. That's a growing demographic and one that could be a key market for InMode to pursue.
In the short run, the company has run into some headwinds due to the challenging macroeconomic environment. Last week, InMode reduced its full-year guidance for 2023, now expecting revenue of $500 million to $510 million, which is about a $30 million reduction from its original forecast. That would imply a 10% growth rate from the $454 million it recorded in 2022. The company says interest rates are weighing on the financing of medical equipment, which is impacting its sales activity. InMode didn't mention net income in its update, but the company typically nets a high profit margin; last year, its profits were 35% of the top line.
InMode's stock is down 40% this year, and the ongoing conflict between Israel and Hamas in Gaza has resulted in new concerns involving the Israeli company's safety. However, InMode says that it doesn't anticipate any production interruptions and that it is prioritizing employee safety.
While this may be a challenging time for InMode for multiple reasons, it's a business that remains in good shape, and it's an investment that can double in value in the long run given the opportunities it has ahead.
