DexCom: A High-Priced Medical Devices Company Remains Stuck In A Downtrend

Sep. 21, 2022 10:39 AM ETDexCom, Inc. (DXCM)SNSR, XLV, IHI, SPY1 Comment


  • The Health Care sector has easily beaten the broad market so far in 2022.
  • One risk-on niche of Health Care is Medical Devices, down sharply this year.
  • DexCom, Inc. is down nearly 50% from its all-time high last year, but the stock still looks expensive.

Reading a glucose with device for continuous glucose monitoring in blood – CGM. On arm is placed white sensor witch send information to the CGM device. Daily graph on screen

Dragoljub Bankovic/iStock via Getty Images

The Health Care sector has been a strong play lately. The generally defensive area has been a place of solace amid a year of volatility. Just in the last five weeks the broad market has seen selling resume.

While the Health Care Select Sector SPDR ETF (XLV) is down just 11% in 2022, the S&P 500 ETF is off more than 18%. An industry that has not worked in the sector, though, is Medical Devices.

The iShares U.S. Medical Devices ETF (IHI) is down a whopping 24% so far this year. One stock that had been a massive winner is mired in a downtrend and still sports a pricey valuation.

Medical Devices ETF Underperforming SPY & XLV YTD

Medical Devices ETF Underperforming SPY & XLV YTD

According to Bank of America Global Research, DexCom, Inc. (NASDAQ:DXCM) operates as a medical device company focused on the design and development of continuous glucose monitoring (CGM) systems for people with diabetes. The Company has developed a small implantable device that continuously measures glucose levels in subcutaneous tissue just under the skin. Real-time data is processed and displayed, and patients are also alerted when levels are too high or too low. DexCom's products are marketed to physicians, endocrinologists, and diabetes educators.

The California-based $34.5 billion market cap Health Care Equipment & Services industry company within the Health Care sector trades at a very high 180 trailing 12-month GAAP price-to-earnings ratio and does not pay a dividend, according to The Wall Street Journal.

On valuation, BofA analysts expect both operating and GAAP EPS to rise at a solid clip looking out through 2024. The Bloomberg consensus forecast for per-share profit growth is even higher, but DexCom is not expected to initiate a dividend anytime soon. Its free cash flow yield is exceptionally low, so the company is focused on reinvesting earnings. A high P/E is coupled with a very elevated EV/EBITDA multiple.

Whenever a company has nosebleed valuation multiples like this, it’s important to review growth prospects. Seeking Alpha has an A rating on DXCM’s growth outlook. As a result, its PEG ratio is 4.2 using a 26.8% 3-5-year EPS growth rate. That's still a high price to pay in my opinion.

DXCM Earnings, Valuation, And Free Cash Flow Forecasts

DXCM: Earnings, Valuation, Free Cash Flow Forecasts

BofA Global Research

Looking ahead, Wall Street Horizon shows an unconfirmed Q3 earnings date of Thursday, Oct. 27 AMC. After presenting at a trio of recent industry conferences, the corporate event calendar is light until the next quarterly report.

Corporate Event Calendar

Corporate Event Calendar

Wall Street Horizon

The Technical Take

DXCM is nearing a critical juncture on the chart. Notice in the 3-year zoom below that shares have been consolidating for a few months now. After a massive rally in 2020 and 2021, the stock peaked late last year around $165. A plunge of almost $100 actually brought the stock under its key range in the mid-to-upper $70s. That looks like a bullish false breakdown to me. Since then, DexCom has trended higher toward the $90 mark.

But notice the ‘volume by price’ indicator on the left – there is a hefty amount of shares traded in the $77 to $110 range. That could be tough resistance to get through. Moreover, the bulls have to muster a rally above DXCM’s downtrending resistance line off the all-time high.

This is really a ‘wait and see’ pattern. I want to see what happens with this consolidation pattern – will it feature a bullish breakout toward $110 or will the current uptrend breakdown?

Given the big volume just above the current price and what looks like a corrective pattern off the 2021 peak, I lean bearish technically.

DXCM Shares Consolidating At Resistance

DXCM: Shares Consolidating At Resistance

The Bottom Line

DexCom has a sky-high valuation and a questionable chart. That yields a sell recommendation and long-term investors should at least wait for the downtrend to show better signs of ending and hopefully improving valuations in the years ahead.

This article was written by

CFA & CMT Charterholder | Freelance Financial Writer at SoFi & Ally | Investments | Markets | Personal Finance | RetirementI create written content used in various formats including blogs, emails, white papers, and social media for financial advisors and investment firms in a cost-efficient way. My passion is putting a narrative to financial data. Working with teams that include senior editors, investment strategists, marketing managers, data analysts, and executives, I contribute ideas to help make content relevant, accessible, and measurable. Having expertise in thematic investing, market events, client education, and compelling investment outlooks, I relate to everyday investors in a pithy way. I enjoy analyzing stock market sectors, ETFs, economic data, and broad market conditions, then producing snackable content for various audiences. Macro drivers of asset classes such as stocks, bonds, commodities, currencies, and crypto excite me. I truly enjoy communicating finance with an educational and creative style. I also believe in producing evidence-based narratives using empirical data to drive home points. Charts are one of the many tools I leverage to tell a story in a simple but engaging way. I focus on SEO and specific style guides when appropriate. My CFA and CMT backgrounds demonstrate prowess in investment management and my professional experience includes extensive public speaking and communication. Moreover, my extensive university teaching and professional trading experience provide useful skills. Past roles also include heavy use of Excel modeling and chart creation as well as PowerPoint.I am a contributor to The Dividend Freedom Tribe. I am a contributor to Topdown Charts.

Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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