DexCom (DXCM): Assessing Valuation as Operational Gains Highlight Growth and Capital Efficiency

DexCom (DXCM) just reported some compelling figures that are likely to catch the eye of anyone keeping tabs on the healthcare tech space. The recent data shows that the company’s return on capital employed is climbing, reaching 17% over the last five years. This metric is important for investors because it points to DexCom generating more value for every dollar invested, even with a notable jump in current liabilities.

Turning to the stock, DexCom has delivered a positive 12% return over the past year, holding up better than its longer-term performance would suggest. Shares are up almost 5% since the start of the year, although they pulled back 8% this month and have experienced choppy action across the past quarter. These moves appear to reflect rising confidence in the business’s growth potential, balanced with some caution as the market reviews recent operating results.

The key question now is whether operational improvements and a stronger capital base make DexCom attractive at current prices, or if the market has already factored in expectations for the company’s next phase of growth.

Most Popular Narrative: 19.4% Undervalued

According to community narrative, DexCom is trading well below its estimated fair value. This is driven by expectations for strong earnings and margin expansion over the next several years.

The recent expansion of insurance reimbursement for type 2 non-insulin diabetes patients, now covering nearly 6 million lives across the three largest U.S. PBMs, opens a large, previously untapped segment of DexCom's addressable market. This development is driving new patient growth and supporting robust multi-year revenue expansion. Growing global recognition of CGM efficacy, with recent clinical trial evidence and expanded coverage in international markets (for example, France, Japan, and Ontario, Canada), positions DexCom to enter underpenetrated regions and diversify revenue streams, creating sustainable top-line growth.

What is propelling this optimistic view? The fair value calculation depends on aggressive revenue acceleration and improved profitability, both fueled by major shifts in global policy and digital adoption. What are the specific benchmarks analysts expect DexCom to achieve? Explore which key forecasts could turn the stock’s current discount into a noteworthy opportunity. Learn more—the growth story is only beginning.

Result: Fair Value of $102.08 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, significant pricing pressure from Medicare or delays in DexCom's next-generation products could quickly challenge this growth narrative and valuation outlook.

Find out about the key risks to this DexCom narrative.

Another View: Discounted Cash Flow Analysis

While earlier estimates point to DexCom trading at a discount using typical market ratios, our DCF model offers a different perspective. This approach still suggests shares are undervalued, but does it capture all the market’s risks?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out DexCom for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own DexCom Narrative

If you have a different view or want to dive deeper into the numbers, it’s quick and simple to craft your own take on DexCom’s prospects. You can do it your way in under three minutes.

A good starting point is our analysis highlighting 3 key rewards investors are optimistic about regarding DexCom.

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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.

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