Over the last six months, DexCom’s shares have sunk to $62.07, producing a disappointing 6.4% loss - a stark contrast to the S&P 500’s 5.1% gain. This may have investors wondering how to approach the situation.
Following the drawdown, is now an opportune time to buy DXCM? Find out in our full research report, it’s free.
Why Is DexCom a Good Business?
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
1. Core Business Firing on All Cylinders
In addition to reported revenue, organic revenue is a useful data point for analyzing Patient Monitoring companies. This metric gives visibility into DexCom’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, DexCom’s organic revenue averaged 14.1% year-on-year growth. This performance was impressive and shows it can expand quickly without relying on expensive (and risky) acquisitions. 
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
DexCom’s EPS grew at 22.1% compounded annual growth rate over the last five years, higher than its 19.3% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. Increasing Free Cash Flow Margin Juices Financials
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, DexCom’s margin expanded by 20.9 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability. DexCom’s free cash flow margin for the trailing 12 months was 23.1%.
Final Judgment
These are just a few reasons why we think DexCom is a high-quality business. After the recent drawdown, the stock trades at 25.3× forward P/E (or $62.07 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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