If EPS Growth Is Important To You, DexCom (NASDAQ:DXCM) Presents An Opportunity

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like DexCom (NASDAQ:DXCM). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide DexCom with the means to add long-term value to shareholders.

See our latest analysis for DexCom

How Quickly Is DexCom Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years DexCom grew its EPS by 5.0% per year. That might not be particularly high growth, but it does show that per-share earnings are moving steadily in the right direction.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of DexCom shareholders is that EBIT margins have grown from 13% to 17% in the last 12 months and revenues are on an upwards trend as well. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of DexCom's forecast profits?

Are DexCom Insiders Aligned With All Shareholders?

Since DexCom has a market capitalisation of US$52b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth US$206m. This comes in at 0.4% of shares in the company, which is a fair amount of a business of this size. This should still be a great incentive for management to maximise shareholder value.

Does DexCom Deserve A Spot On Your Watchlist?

As previously touched on, DexCom is a growing business, which is encouraging. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. What about risks? Every company has them, and we've spotted 2 warning signs for DexCom you should know about.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by recent insider purchases.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.