Summary
- DexCom is an attractive company riding a long-term secular trend in the growth of chronic care management.
- Stock has performed well this year and is trading at the high range of historical averages.
- Recommend waiting for a better entry point but current holders should not sell.
Introduction
DexCom (NASDAQ:DXCM) has been a core holding of mine since 2018, and I want to first begin with the factors that led me to starting a position. My goal for my portfolio was to identify multi-year growth stories that had a defensible moat and a small to medium market cap (< $10B). This would allow for the production of alpha over time as the company could expand its valuation as the growth story developed. To discover ideas for my portfolio, I noted secular trends that could power a rally over the next 10 years. This long term horizon would prevent me from fixating on the hottest stocks that often become crowded investments.
Secular Trend
Rise prevalence of chronic conditions among the general population that will need to be addressed through emerging medical technologies.
Chronic diseases are on the rise in the United States with an estimated 6 in 10 adults having one and 4 in 10 having two or more. Diabetes is one example of a chronic condition, currently affecting 1 in 10 Americans with an even larger group, 1 in 3 that are pre-diabetic. Diabetes is split into two types (1 and 2). Type 1 diabetes is caused when the body does not produce enough insulin and accounts for 5-10% of overall cases. Type 2 diabetes is caused when the body does not react normally to insulin, leading to high blood sugar (glucose) and other complications (90-95% of all cases). Type 2 incidence is behind the rapid rise in diabetes prevalence and will continue to drive new cases in the future.
Yet, while there is no cure for Diabetes, it can be managed and treated. If untreated, the disease will cause the body to have extreme levels of glucose in the blood, causing health complications. One breakthrough in Diabetes management is the development tools that share a real-time report of glucose levels. Some will inform wearers when levels fall outside normal ranges, which allows them to take immediate action and manage their condition.
DexCom Overview
DexCom, a San Diego based company, developed a continuous glucose management system (GSM) that allows individuals to get a real-time view of their glucose levels. DexCom’s G6 GSM platform gives readouts every 5 minutes and can even deliver reports to your Apple Watch or iPhone. Users gain peace of mind by setting threshold levels within the app that notify them when key levels are reached, eliminating the need to constantly check the app.