Insights

Why DexCom Is Down More Than 11% on Tuesday

What happened
DexCom (NASDAQ: DXCM) shares are lower to the tune of 11.4% as of 12:40 p.m. ET today, according to data from S&P Global Market Intelligence, caught up in a broad sell-off. Reports that it’s mulling an acquisition of Insulet (NASDAQ: PODD) may be exacerbating the weakness.
So what
It wouldn’t be a mismatch. Insulet makes the Omnipod insulin delivery system for diabetics, while DexCom manufactures continuous glucose monitors. The two companies target the same basic market, and could cross-sell one another’s devices. It’s also conceivable that each outfit’s proprietary technology could be combined with the other’s to create an even more marketable diabetes-management solution.
Image source: Getty Images.

However, the timing of such a deal, first suggested late Monday by Bloomberg, isn’t ideal given the response from DexCom investors. While Insulet is profitable and growing rapidly, BTIG analyst Marie Thibault notes that if even part of such an acquisition is funded with stock, that funding would be made relatively more expensive by the fact that DexCom shares are now down by more than 50% since November’s high.
Thibault also questions the potential of such a pairing, explaining that DexCom’s glucose monitors are typically intended for diabetes patients who don’t necessarily require regular insulin injections.
Insulet investors are cheering the prospect. Their stock is up on the order of 7% Tuesday, wiping away at least part of its 40% rout suffered since November.
Now what
Be wary of counting on any merger to take shape, even if the pairing of the two diabetes-focused companies is sound in principle. Bloomberg only cited “people with knowledge of the matter” to support its story, which is hardly ironclad proof that a merger looms. And regardless, rumored buyouts aren’t exactly the stuff of sound stock picking. If you weren’t interested in Insulet yesterday, or you were hopeful regarding DexCom’s future, nothing about those stances should be changed by a rumored acquisition. Also bear in mind that whatever valuation resets are merited by the suggested acquisition may already be reflected in each stock’s new price today.
In other words, as exciting as the rumor may be, there’s not enough certainty or clarity here to merit a new trade of either name.
James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends DexCom and Insulet. The Motley Fool has a disclosure policy. –

What happened

DexCom (NASDAQ: DXCM) shares are lower to the tune of 11.4% as of 12:40 p.m. ET today, according to data from S&P Global Market Intelligence, caught up in a broad sell-off. Reports that it’s mulling an acquisition of Insulet (NASDAQ: PODD) may be exacerbating the weakness.

So what

It wouldn’t be a mismatch. Insulet makes the Omnipod insulin delivery system for diabetics, while DexCom manufactures continuous glucose monitors. The two companies target the same basic market, and could cross-sell one another’s devices. It’s also conceivable that each outfit’s proprietary technology could be combined with the other’s to create an even more marketable diabetes-management solution.

Image source: Getty Images.

However, the timing of such a deal, first suggested late Monday by Bloomberg, isn’t ideal given the response from DexCom investors. While Insulet is profitable and growing rapidly, BTIG analyst Marie Thibault notes that if even part of such an acquisition is funded with stock, that funding would be made relatively more expensive by the fact that DexCom shares are now down by more than 50% since November’s high.

Thibault also questions the potential of such a pairing, explaining that DexCom’s glucose monitors are typically intended for diabetes patients who don’t necessarily require regular insulin injections.

Insulet investors are cheering the prospect. Their stock is up on the order of 7% Tuesday, wiping away at least part of its 40% rout suffered since November.

Now what

Be wary of counting on any merger to take shape, even if the pairing of the two diabetes-focused companies is sound in principle. Bloomberg only cited “people with knowledge of the matter” to support its story, which is hardly ironclad proof that a merger looms. And regardless, rumored buyouts aren’t exactly the stuff of sound stock picking. If you weren’t interested in Insulet yesterday, or you were hopeful regarding DexCom’s future, nothing about those stances should be changed by a rumored acquisition. Also bear in mind that whatever valuation resets are merited by the suggested acquisition may already be reflected in each stock’s new price today.

In other words, as exciting as the rumor may be, there’s not enough certainty or clarity here to merit a new trade of either name.

James Brumley has no position in any of the stocks mentioned. The Motley Fool recommends DexCom and Insulet. The Motley Fool has a disclosure policy.

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