Over the past six months, DexCom has been a great trade, beating the S&P 500 by 11.5%. Its stock price has climbed to $91.17, representing a healthy 23.6% increase. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now still a good time to buy DXCM? Or are investors being too optimistic? 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 12% year-on-year growth. This performance was impressive and shows it can expand quickly without relying on expensive (and risky) acquisitions. 
2. 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 20.2 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 28.3%.
3. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
Over the last few years, DexCom’s ROIC has increased significantly. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons why DexCom ranks highly on our list, and with its shares topping the market in recent months, the stock trades at 32.3× forward P/E (or $91.17 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than DexCom
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