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Dexcom (NASDAQ: DXCM) – A Medical Device Company Tackling Diabetes and Rewarding Shareholders Along the Way

19 February 2019  |  TRADING IDEAS

Dexcom is a medical device company, which provides continuous glucose monitoring (GCM) technology for diabetes patients. The company was founded in 1999 and went public on NASDAQ in 2005. In 2015, the company introduced the first app that enabled CGM on Apple Watch.

Product overview

Diabetes is a disease that occurs when the blood glucose gets out of control when the body either doesn't make enough insulin or can't use its own insulin as well as it should. In the case the blood glucose level comes to an abnormal level, the insulin treatment should be given immediately, so it is very important to monitor the blood glucose level continuously. Dexcom’s device provides strong support for the blood glucose level monitoring.

Dexcom sells continuous glucose monitoring (GCM) technology. The traditional blood glucose tests are done by majoring the glucose level of the blood which is taken periodically by sticking a finger with a special needle. However Dexcom G6, Dexcom’s GCM newest technology, enabled users to monitor the blood glucose level continuously without fingersticks.

Dexcom G6: Users insert a small sensor just beneath the skin. It continuously measures glucose levels and sends data wirelessly to a display device through a transmitter. Display device, a small touch screen receiver or compatible smart devices, displays real-time glucose data. The company has provided monitoring apps for Apple Watch since 2015 and Fitbit since 2017.

Revenue and loss

Dexcom has increased revenue year after year and made $718.5 million in 2017 ($9.8 million in 2008). However the company has also incurred operating losses in each year since its inception. In 2017, the company reported $42.5 million of operating loss.

Revenue in the United States reached $596.2 million, which accounts for 83% of total revenue. Revenue from outside of the United States increased to $122.3 million from $35 million in 2014 (average annual growth rate: 44.2%).

Looking into the cost structure, the cost of sales decreased to 31.5% in 2018 from 53.4% in 2012. Other parts of costs are also showing improvement trend.

Balance sheet

The company valued cash and cash equivalents at $668 million and total asset at $1,114 million. Accumulated deficit was -$619.2 million and additional paid-in capital was $1,181.6 million.

Cash flow and other financial analysis

Cash flow from operating activities has turned positive since 2014. Though the company reported operating loss, cash flow from operating activities included share-based compensation resulted in positive. The increase in cash flow from financing activities was primarily due to $389.0 million net proceeds from the issuance of senior convertible notes, net of issuance costs.

FCF has turned positive since 2014. The company reported $26million in FCF in 2017.

The stock price has been keeping on rising since 2013. The company’s EV is $13billion and EV/FCF is 500 as of February 13, 2019.

Market Overview

The company predicts to earn $975 million in revenue in 2018 (+36.1% YOY).

The number of people effected by diabetes is predicted to be 629 million in year 2045 worldwide. West Pacific, which includes Australia, takes up the largest proportion of the prediction.

The diabetes market is predicted to keep increasing its size in the future. It is predicted to increase to $137.7 billion in 2028 compared to $68.9 billion in 2017.

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The original article was published by Stockclip, Inc. on 10/02/2019.

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