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Is Dexcom’s share price poised to break out?

Dexcom’s [DXCM] share price started the New Year in solid fashion, climbing 4.97% to close at $388.09 after the first week of trading. This continued the positive trend in 2020, after the San Diego-based medical technology firm rose 69.02% last year, closing at $369.72. A constituent of the S&P 500, Dexcom’s share price growth easily outstripped the wider index, which gained a comparatively meagre 16.26% over the year.

The stock has had a more muted second week of the year but its core business remains strong. Could it be set to break out in 2021?

 

 

Dexcom and diabetes

Dexcom provides revolutionary technology for diabetes patients – a chronic disease which is affecting an ever-growing number of people. The sheer scale of the diabetes problem is underlined by data from the World Health Organisation, which shows the number of people with diabetes increased almost fourfold in just 36 years, from 108 million in 1980 to 422 million in 2016. 

Diabetes is a global problem and, as Jonathan Waldron recently pointed out in The Motley Fool, over 34 million people have diabetes in the US alone, with another 88 million Americans classified as at risk of developing the disease. This equates to around 10% of the US population, with a further 25% at risk.

In tandem with these startling facts is the seismic potential for medical technology firms. 

“Investing in med-tech is likely to become more mainstream as innovation and demand creates more opportunities,” according to Sky Medical Technology CEO, Bernard Ross, writing recently in whatinvestment.co.uk

 

"Investing in med-tech is likely to become more mainstream as innovation and demand creates more opportunities" - Bernard Ross, CEO at Sky Medical Technology

 

Medtech companies can provide new, cost-effective ways to alleviate the growing pressure on the global healthcare system, driven by an ageing population. Ross is clearly bullish about the future of the medtech sector, arguing that it “has seen substantial growth in recent years and that trend is expected to continue – the European medical technology market is estimated to be worth more than €120bn.”

The sheer number of people with diabetes, and the speed of advancement in medtech, points to huge potential for the industry — and not least for Dexcom’s share price.

 

Innovative tech boosts Dexcom’s share price appeal 

DexCom's continuous glucose monitoring (CGM) system allows diabetes patients to track their glucose levels with a wearable device that transmits biometrics to the user’s smart device every five minutes. The contrast is stark compared with traditional glucose monitoring products, which are painful, difficult to use and impractical.

Waldron reckons Dexcom’s tech is “life-altering for patients because of convenience, elimination of pain, and, most importantly, real-time glucose levels that can provide insights and analytics”. He adds that CGM technology “has propelled stocks like Dexcom and its competitors higher in recent years”. The company is currently working on a new product, which is expected to launch in the second half of 2021. 

Dexcom’s share price gain of almost 70% last year not only outperformed the wider S&P 500, it also beat its rivals. As Waldron notes, Dexcom’s share price has been on a steep upward curve over the longer-term too: “Over a five-year period, Dexcom's stock has increased 344%, compared to the broader market, which rose 81%.”

 

70%

Dexcom's approx. share price gains in 2020

 

So, is there more upside in Dexcom’s share price for investors?

 

Where next for Dexcom’s share price?

Among the 18 analysts offering 12-month price targets on the stock with the Wall Street Journal, Dexcom’s share price has an average target of $459.67, with a high estimate of $540 and a low estimate of $350. The average estimate represents a 26.8% upside on 13 January’s closing price of $362.55. 

Of the 21 analysts providing recommendations, 15 rate the medtech firm a buy (up from 14 a month ago), with two overweight, two hold and two sell ratings, giving an overall consensus rating of buy. 

When you consider the scale of the diabetes market, the potential for product development and innovation, and the upward trajectory of the stock over the last five years, combined with bullish analyst forecasts, we’re likely to be hearing more of Dexcom’s share price in the year ahead.

Dexcom’s share price has caught the eye of OptionsHawk founder Joe Kunkle, who has included it in his Innovators Signature Sharebasket, a unique trading tool made in partnership with CMC Markets.

 

Market cap $34.034bn
PE ratio (TTM) 146.52
EPS (TTM) 2.42
Quarterly revenue growth (YoY) 26.40%

Dexcom's share price vitals, Yahoo Finance, 

 

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

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