Though we are in a bull market, some companies are failing to keep up the pace for various reasons. For instance, medical device specialist Tandem Diabetes Care (TNDM -0.90%) encountered economic troubles recently, while fintech leader PayPal Holdings (PYPL 2.90%) dealt with slowing revenue growth and a change in leadership that may have spooked investors last year.
Both stocks have substantially lagged the market over the past 12 months. Even so, there remain good reasons to invest in PayPal and Tandem Diabetes Care.
1. Tandem Diabetes Care
Tandem Diabetes Care focuses on developing insulin pumps. That is an incredibly important business. The diabetes epidemic now affects more than half a billion people worldwide, according to some estimates. Insulin pumps are a convenient alternative to painful and cumbersome multiple daily injections (MDIs). Many pumps are discreet and easy to conceal. That applies to Tandem's t:slim X2, which is smaller than many competitors without sacrificing the amount of insulin it holds.
This gadget also has other perks, including the fact that patients can pair it with continuous glucose monitoring systems to automate the insulin delivery process. However, over the past two years, the somewhat tricky economic environment affected purchases of Tandem's insulin pumps. In the third quarter, the company's pump shipments declined by almost 24% year over year, while its revenue of $185.6 million was 9% lower than the year-ago period.
Tandem also remains unprofitable although its net loss per share in the third quarter came in at $0.51, much better than the $0.76 loss it reported in the third quarter of 2022. Still, there is hope for the company. For one, the challenging economy won't disrupt its business forever. And Tandem still sees massive growth potential. For instance, the company does business in 25 countries outside the U.S., where the penetration rate for insulin pumps is typically only between 10% and 20%.
That gives Tandem plenty of opportunity for growth. Further, the company earned approval for a brand new product last year, the Mobi system, which is smaller and, just as important, 10% to 15% cheaper to manufacture than the t:slim X2. In other words, greater adoption of its newer device should have a positive impact on the bottom line.
While Tandem competes with companies much bigger in this field, it has remained competitive. The medical device specialist estimates that about half of its customers switched from a competitor, while the other half switched from MDIs. Even with the troubles it encountered recently, Tandem should reward patient investors given how important its products are to diabetes patients and its growing installed base. It ended the third quarter with 444,000 patients, an increase of 11% year over year.
Its goal is to reach the 1 million mark, creating a massive ecosystem of people constantly buying pump-related supplies and ordering new ones every few years -- a constant stream of revenue that will work wonders for the company's growth, margins, and bottom line. In short, though Tandem Diabetes Care is down, it is far from out.
2. PayPal
PayPal's business hit all-time highs in 2020 when the COVID-19 pandemic first hit, with its revenue and net new accounts soaring. Things have cooled down since then. In the third quarter of 2023, PayPal's top line grew by 8% year over year to $6.8 billion. Here's what PayPal's revenue growth trends look like over the past three years.
PYPL Revenue (Quarterly YoY Growth) data by YCharts
Last year, its longtime CEO Dan Schulman stepped down from his role. Schulman had been at the head of PayPal since it split from eBay and became a publicly traded company. Leadership changes can be stressful for investors, but in my view, PayPal will be just fine.
First, PayPal's reach remains impressive. For the 12 months ended Sept. 30, the company processed an impressive $1.5 trillion in payment volume. Besides the scale and reach of PayPal's business, here's why that matters. The company arguably benefits from the network effect, so the larger its ecosystem, the more attractive it becomes to merchants and consumers.
This is a good sign PayPal can continue growing its number of accounts, payment volume, and revenue for years. On the CEO front, PayPal hired Alex Chriss, a former executive with Intuit, a company that offers financial services to individuals, self-employed workers, and small and medium-sized businesses.
Only time will tell whether that was a great choice, but it is worth pointing out that Chriss has a successful track record of leading and managing financial services directed at both consumers and businesses, which is right up PayPal's alley. Under his guidance, PayPal continues to improve its business and recently launched half a dozen new artificial intelligence-centered features. They include solutions to the slow checkout process and "smart receipts" that help customers predict what else they might want to buy from the same merchants.
These innovations are aimed at increasing customer satisfaction and the productivity of merchants, all things that should result in more business for PayPal. Meanwhile, the company still has vast opportunities in the fintech market, an industry with miles of growth left ahead. Given PayPal's competitive edge, name recognition, and improving business, it looks like a top stock to profit from the fintech revolution.
