Despite shrinking by US$2.3b in the past week, DexCom (NASDAQ:DXCM) shareholders are still up 458% over 5 years

DexCom, Inc. (NASDAQ:DXCM) shareholders have seen the share price descend 19% over the month. But that doesn't change the fact that the returns over the last half decade have been spectacular. In fact, during that period, the share price climbed 458%. Impressive! So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain.

Since the long term performance has been good but there's been a recent pullback of 5.1%, let's check if the fundamentals match the share price.

See our latest analysis for DexCom

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the five years of share price growth, DexCom moved from a loss to profitability. Sometimes, the start of profitability is a major inflection point that can signal fast earnings growth to come, which in turn justifies very strong share price gains. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. Indeed, the DexCom share price has gained 199% in three years. In the same period, EPS is up 123% per year. This EPS growth is higher than the 44% average annual increase in the share price over the same three years. So you might conclude the market is a little more cautious about the stock, these days. Of course, with a P/E ratio of 81.91, the market remains optimistic.

The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).

We know that DexCom has improved its bottom line over the last three years, but what does the future have in store? It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

We're pleased to report that DexCom shareholders have received a total shareholder return of 26% over one year. However, that falls short of the 41% TSR per annum it has made for shareholders, each year, over five years. Potential buyers might understandably feel they've missed the opportunity, but it's always possible business is still firing on all cylinders. It's always interesting to track share price performance over the longer term. But to understand DexCom better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with DexCom (at least 1 which can't be ignored) , and understanding them should be part of your investment process.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.