Last year, tech giant Amazon (AMZN 3.43%) and medical device specialist DexCom (DXCM -9.90%) were among the several high-profile companies to conduct stock splits. This move attracted plenty of attention from investors and analysts.
As we know, stock splits don't improve a company's prospects. Still, it is worth noting that Amazon and DexCom performed pretty well since their splits went into effect. However, there are better reasons to invest in these stocks, including their excellent growth prospects, which could help them deliver outsized returns to patient investors. Let's find out a little more.
1. Amazon
Amazon conducted a 20-for-1 stock split that took effect on June 6, 2022. It was the company's first such move in more than 20 years -- no wonder it attracted so much attention. However, there are other reasons behind Amazon's momentum over the past year and a half. First, the company's financial results have improved, especially this year. In 2022, the tech giant reported a rare net loss due to a slowdown in economic activity, inflation, and supply chain issues that affected the top and the bottom lines.
Things have been different in 2023: Through Sept 30, Amazon reported net sales of $404.8 billion, an increase of about 11% year over year. Importantly, its net loss per share of $0.29 in the first nine months of 2022 turned into net earnings per share (EPS) of $1.89 this time around. Here's another reason Amazon's stock has performed well recently: It is positioning itself as a leader in artificial intelligence (AI). Though it has been using various AI applications for years, Amazon is doubling down.
The company is currently revamping its e-commerce platform with generative AI capabilities and using AI to help boost its advertising business.
Further, earlier this year Amazon launched Bedrock, a service designed to aid in the development of generative AI applications. The tech giant is also offering various AI tools through its cloud computing service Amazon Web Services. AI represents a significant long-term opportunity, and Amazon isn't wasting time taking advantage.
Meanwhile, beyond e-commerce, advertising, and cloud computing -- three areas of its business that should continue growing -- Amazon continues to invest in healthcare. Its efforts in this industry haven't yet paid off the way the company hoped, but given Amazon's track record and ability to generate cash, the smart money is on the company succeeding in carving out a niche for itself in the massive medical industry.
Amazon does have some challenges, including a legal battle against the U.S. Federal Trade Commission. But even in the worst-case scenario, shareholders should come out on top. Amazon's latest stock split might be a distant memory by now, but the company's underlying business and growth prospects look too attractive to pass up. That's why it's worth buying the stock and sticking it out for a while.
2. DexCom
DexCom conducted the first stock split in its history in June 2022. The 4-for-1 split came at a time when DexCom's business was seeing significant progress.
The company develops and markets continuous glucose monitoring (CGM) devices that help diabetes patients keep track of their blood sugar levels. Last year DexCom started launching its newest CGM system, the G7, in Europe.
The company did the same in the U.S. this year. It has also been introducing another CGM option for price-sensitive customers, the DexCom ONE, in various regions. However, the company continues to make much of its money from the G6.
Financial results remain solid for DexCom. In the third quarter, the company's revenue of $975 million jumped by 27% year over year. DexCom's adjusted EPS of $0.50 was much better than the $0.28 reported in the year-ago period.
There is the fear that weight-loss medicines that are soaring in popularity will make the need for CGM devices somewhat obsolete, but neither of the two leaders in this field -- DexCom and Abbott Laboratories -- seems to have felt this effect yet. And according to DexCom's management, there is nothing to fear. As CEO Kevin Sayer recently said: "Data continues to demonstrate that clinicians prefer to use CGM together with [weight loss] drugs to drive the best possible outcomes."
In other words, these two options are complementary rather than mutually exclusive. Meanwhile, there remains plenty of whitespace for CGM devices. Even in the U.S., DexCom estimates that the percentage of diabetes patients using CGM is a fraction of those who benefit from third-party reimbursement for the technology. DexCom still has ample room to grow, and the company could deliver excellent results in the next decade.
