Does DexCom’s Stock Slide Offer Opportunity After Glucose Monitoring Advances?

• Wondering if now is the right time to buy DexCom? You are not alone. Many investors are trying to figure out if the stock's recent moves make it a bargain or a trap.
• The stock rose 4.7% over the past week, but is still down 20.3% year-to-date, with a 19.9% decline over the last 12 months. This suggests that the market is reassessing its growth prospects and risk profile.
• DexCom has appeared in headlines recently for its advances in continuous glucose monitoring technology and reports of potential healthcare policy shifts in the US. This news has shaped sentiment around the stock and contributed to recent price fluctuations.
• On the valuation front, DexCom scores a strong 5 out of 6 on our value checks, meaning it passes most of our tests for being undervalued. We will break down what goes into this score and compare valuation approaches. Stay tuned for a fresh perspective on what really drives DexCom’s value by the end of the article.

Find out why DexCom's -19.9% return over the last year is lagging behind its peers.

Approach 1: DexCom Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a popular valuation approach that estimates a company's intrinsic value by projecting its future cash flows and discounting them back to today at an appropriate rate. This allows investors to see what the company is worth right now, based on its expected ability to generate cash over time.

For DexCom, the current Free Cash Flow stands at just under $1.1 Billion for the last twelve months. Analyst estimates indicate that this figure is expected to more than double over the next five years, reaching approximately $2.02 Billion by the end of 2029. While analysts typically forecast up to five years, projections beyond that are extrapolated using industry models.

Based on these forward-looking cash flows, DexCom's intrinsic value is calculated to be $126.02 per share using the DCF method. This estimate suggests the stock is trading at a 50.4% discount to its intrinsic value, indicating that shares may be significantly undervalued relative to their fundamental outlook.

Given this margin, the DCF analysis highlights a potential opportunity for investors who see long-term potential in DexCom.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests DexCom is undervalued by 50.4%. Track this in your watchlist or portfolio, or discover 926 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for DexCom.

Approach 2: DexCom Price vs Earnings

The Price-to-Earnings (PE) ratio is a well-known and widely used metric for valuing profitable companies like DexCom. It provides a straightforward way to gauge how much investors are willing to pay for each dollar of a company’s earnings, making it particularly meaningful for firms with steady profits.

Growth expectations and risk both play an important role in what counts as a reasonable or “fair” PE ratio. Companies with higher expected earnings growth or lower perceived risk typically command higher multiples, while slower growth or greater risks can justify lower PE ratios.

DexCom currently trades at a PE ratio of 33.8x. This is notably above the Medical Equipment industry average of 28.9x but below the average of its direct peers, which sits at 45.3x. Comparing ratios like this offers context, but does not always capture the nuances of an individual company’s profile.

This is where Simply Wall St’s Fair Ratio comes in. The Fair Ratio for DexCom is calculated at 34.4x, reflecting a comprehensive view that considers factors such as the company’s earnings growth, profit margins, risk characteristics, market capitalization, and its place within the broader industry. Unlike a simple peer or sector comparison, the Fair Ratio is tailored to DexCom’s unique circumstances.

Given that DexCom’s actual PE ratio of 33.8x is nearly identical to the Fair Ratio of 34.4x, the stock appears to be trading in line with what would be considered fundamentally fair value for its earnings potential and risk profile.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1433 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your DexCom Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is simply your story or perspective about a company, expressed through your assumptions about fair value and future growth, such as revenue, earnings, and profit margins, rather than just numbers alone. Narratives link DexCom’s evolving story to its financial forecasts and, ultimately, to what you believe is a fair value, combining both fact and personal outlook in a way that is easy to use and understand.

Narratives are available directly within Simply Wall St’s Community page, allowing millions of investors to create, compare, and adjust these stories in real time. By comparing your Narrative’s fair value with DexCom’s current price, you can quickly see if it might be time to buy, hold, or sell. As news or earnings are released, the numbers and narrative update instantly, keeping your view up to date.

For example, some investors foresee a bullish future for DexCom and estimate a fair value as high as $115.0, while others are more cautious, assigning a fair value as low as $83.0. This shows how personal stories, not just consensus targets, can shape smarter investment decisions.

Do you think there's more to the story for DexCom? Head over to our Community to see what others are saying!

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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