DexCom (DXCM)

Medical device company DexCom (NASDAQ:DXCM) announced better-than-expected revenue in Q1 CY2025, with sales up 12.5% year on year to $1.04 billion. The company expects the full year’s revenue to be around $4.6 billion, close to analysts’ estimates. Its non-GAAP profit of $0.32 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ:DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.

Patient monitoring companies within the healthcare equipment industry offer devices and technologies that track chronic conditions and support real-time health management, such as continuous glucose monitors (CGMs) and sleep apnea machines. These businesses benefit from recurring revenue from consumables and software subscriptions tied to device sales (razor, razor blade model). The rising prevalence of chronic diseases like diabetes and respiratory disorders due to an aging population as well as growing adoption of digitization are good for the industry. However, these companies face challenges from high R&D costs and reliance on regulatory approvals. Looking ahead, the sector is positioned for growth due to tailwinds like the rising burden of chronic diseases from an aging population, the shift toward value-based care, and increased adoption of digital health solutions. Innovations in AI and machine learning are expected to enhance device accuracy and functionality, improving patient outcomes and driving demand. However, there are headwinds such as pricing pressures as healthcare costs are a key focus, especially in the US. An evolving regulatory landscape and competition from more tech-forward new entrants could present additional challenges.

DexCom's primary competitors in the continuous glucose monitoring market include Abbott Laboratories' Diabetes Care division (NYSE:ABT) with its FreeStyle Libre system, Medtronic's Diabetes Group (NYSE:MDT), and privately-held companies like LifeScan and Ascensia Diabetes Care.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $4.15 billion in revenue over the past 12 months, DexCom has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, DexCom grew its sales at an impressive 21% compounded annual growth rate. Its growth surpassed the average healthcare company and shows its offerings resonate with customers, a great starting point for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. DexCom’s annualized revenue growth of 17.1% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

DexCom also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, DexCom’s organic revenue averaged 18.7% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline results.

This quarter, DexCom reported year-on-year revenue growth of 12.5%, and its $1.04 billion of revenue exceeded Wall Street’s estimates by 1.8%.

Looking ahead, sell-side analysts expect revenue to grow 15.2% over the next 12 months, a slight deceleration versus the last two years. Still, this projection is noteworthy and suggests the market is forecasting success for its products and services.

DexCom has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 14.5%, higher than the broader healthcare sector.

Analyzing the trend in its profitability, DexCom’s operating margin of 15.3% for the trailing 12 months may be around the same as five years ago, but it has increased by 2.1 percentage points over the last two years. This dynamic unfolded because its sales growth gave it operating leverage and shows it has some momentum on its side.

This quarter, DexCom generated an operating profit margin of 12.9%, up 1.9 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

DexCom’s EPS grew at an astounding 23% compounded annual growth rate over the last five years, higher than its 21% annualized revenue growth. However, we take this with a grain of salt because its operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q1, DexCom reported EPS at $0.32, in line with the same quarter last year. This print missed analysts’ estimates, but we care more about long-term EPS growth than short-term movements. Over the next 12 months, Wall Street expects DexCom’s full-year EPS of $1.64 to grow 30.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

DexCom has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 12.4% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that DexCom’s margin dropped by 4.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

DexCom’s five-year average ROIC was 24.9%, placing it among the best healthcare companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, DexCom’s ROIC averaged 2.7 percentage point decreases over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

DexCom is a well-capitalized company with $2.70 billion of cash and $2.53 billion of debt on its balance sheet. This $175.8 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly DexCom blew past analysts’ organic revenue expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. On the other hand, its EPS missed. Overall, this print had some key positives. The stock traded up 4.1% to $73.13 immediately following the results.

Updated: May 22, 2025 at 11:48 PM EDT

When considering an investment in DexCom, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

DexCom is a rock-solid business worth owning. For starters, its revenue growth was impressive over the last five years. On top of that, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders, and its stellar ROIC suggests it has been a well-run company historically.

DexCom’s P/E ratio based on the next 12 months is 39.6x. Some good news is baked into the stock given its multiple, but we’ll happily own DexCom as its fundamentals really stand out. It’s often wise to hold investments like this for at least three to five years, as the power of long-term compounding negates short-term price swings that can accompany relatively high valuations.

Wall Street analysts have a consensus one-year price target of $98.01 on the company (compared to the current share price of $83.50).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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