With the company’s current market cap of $28 billion, it’s important to note that DexCom (NASDAQ: DXCM) is already one of the largest medical device manufacturers in the world, so it’s unlikely the company’s value will skyrocket overnight, or even over the course of several years.
To make an investor a millionaire, the investor must have the patience to put significant capital into a stock and hold it for the long term. During that time, the company must grow at a moderate to rapid pace and very steadily. Before calculating what it will take, let’s evaluate whether it’s possible.
Is it enough to play the long game?
DexCom makes continuous glucose monitors (CGMs) that you’ve probably seen worn at some point. CGMs are essentially sensors that people with diabetes use to regulate their blood sugar levels to stay healthy and determine exactly when to use interventions like insulin to avoid dangerous and harmful conditions like hyperglycemia.
For comfort and convenience, many people prefer to use a CGM over the traditional method of measuring blood glucose levels, which involves pricking a finger with a small needle to obtain a drop of blood.
DexCom isn’t the only major manufacturer of CGMs (Abbott Laboratories, among other competitors, makes popular devices), but it has an advantage in that it focuses solely on CGMs and related accessories, rather than making other products as well.
Financially, sales are expected to reach just over $4 billion in 2024, up 13% from the previous year. Sales have not fallen sharply in the past decade. Profits have also been accumulating steadily, with quarterly diluted earnings per share (EPS) increasing 180% over the past five years to $0.35.
Although CGMs are no longer a novelty and have achieved significant penetration in the U.S. market, management believes there is still a large unserved population whose insurance could cover the devices.
At the same time, the company is expanding outside the U.S., particularly in the European Union, and working to get public health plans to cover its devices. Longer term, it may also expand into market segments outside of diabetes care, such as consumers looking for sensors for general health and wellness. So, at least in theory, the market isn’t going anywhere anytime soon, paving the way for continued steady growth.
The financial roadmap for investors to become millionaires
Now, let’s calculate whether investing in this company will make shareholders millionaires. Let’s assume we are interested in a 10-year time period to evaluate the growth potential of the investment.
On average, Wall Street analysts estimate that the company can grow EPS at about 24% per year over the long term. Last year, normalized diluted EPS was $1.30. So, if it continues to grow at that rate in 10 years’ time, EPS should be about $11.17.
Currently, Dexcom stock is valued at a price-to-earnings (P/E) ratio of 42. Assuming this valuation holds over the long term, Dexcom’s market capitalization would be approximately $469 billion in 2034, 1,605% higher than it is today. At this growth rate, an investor would need to invest approximately $62,300 to become a millionaire. This is far more than most people have on hand and well beyond the size of a position that can easily be accumulated through dollar-cost averaging (DCA).
And that’s before we examine the long-term validity of assumptions about growth consistency and stock valuation, neither of which are likely to hold true forever, and those numbers may not stay in the same range they are today.
Bottom line: Dexcom has the potential to grow big, and could still be a good investment for the right investor if it isn’t pushed out by competitors, but it’s unlikely to make anyone a billionaire.
Should you invest $1,000 in DexCom right now?
Before you buy DexCom stock, consider the following:
The analyst team at Motley Fool Stock Advisor just identified the 10 best stocks for investors to buy right now, and Dexcom isn’t on the list — all of which have the potential to generate huge gains over the next few years.
Consider the date when Nvidia made this list: April 15, 2005… If you had invested $1,000 at the time of recommendation, you would have made $712,454!*
Stock Advisor gives investors an easy-to-follow blueprint for success, with portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock Advisor service has more than quadrupled S&P 500 returns since 2002*.
View 10 stocks »
*Stock Advisor returns as of September 23, 2024
Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Abbott Laboratories. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
