Is The Rally Over For DexCom Near $400?

by Trefis Team
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DexCom’s stock (NASDAQ:DXCM) trades at $397 currently and it has gained 80% in value so far this year. It traded at a pre-Covid high of $302 in February, and it is currently 30% higher than that level. Also, DXCM stock has gained 87% from the low of $210 seen in March 2020, as the demand for its G6 continuous glucose monitoring device remained high, and it helped the company post a solid 34% jump in Q2 sales even in these challenging times. That said, in view of the strong rally in DXCM stock since late March, we believe that the stock has little room for growth in the near future. Our conclusion is based on our detailed analysis of DexCom’s stock performance during the current crisis with that during the 2008 recession in an interactive dashboard analysis.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as Covid-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 49% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

DexCom Performance During 2020 Coronavirus

DXCM stock declined from levels of around $292 in mid February (pre-crisis peak) to levels of around $210 as of March 23 (as the markets bottomed out), implying DXCM stock lost 28% from its approximate pre-crisis peak. It then rallied to levels of about $395 currently, rising by 87% since March 23. It is also up 80% from levels of $219 seen in early January.

S&P 500 Index Performance During 2020 Coronavirus/Oil Price War Crisis

The S&P 500 index declined from levels of around 3,386 in mid Feb (pre-crisis peak) to levels of around $2,237 as of Mar 23 (as the markets bottomed out), implying the index lost 34% of its value from its approximate pre-crisis peak. It then rallied to levels of about 3,341 currently, rising by 49% since Mar 23. It is also up 3% from levels of 3,231 seen in early January.

2007-08 Financial Crisis

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 1/1/2010: Initial recovery to levels before accelerated decline (around 9/1/2008)

DexCom Stock Performance Over 2007-08 Financial Crisis

We see DXCM stock declined from levels of around $10 in September 2007 (pre-crisis peak) to levels of around $4 in March 2009 (as the markets bottomed out), implying DXCM stock lost 61% from its approximate pre-crisis peak. It recovered post the 2008 crisis, to levels of about $8 in early 2010, rising by 99% between March 2009 and January 2010.

S&P 500 Performance Over The 2007-08 Financial Crisis

S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied to levels of 1,124, rising by about 48% between March 2009 and January 2010.

Fundamentals

How Do DexCom’s Fundamentals Look In Recent Years?

DexCom’s Revenues grew a stellar 4x from $0.4 billion in 2015 to $1.5 billion in 2019, primarily led by the increased adaption of its CGM devices. DexCom’s CGM device – G6 – is FDA approved to make diabetes treatment decisions without a need for a finger prick. With strong growth in revenues, the company was able to expand its margins meaningfully, and it turned profitable in 2019 with earnings of $1.11 per share, compared to a loss of $0.72 in 2015.

Survival Check

Does DexCom Have A Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

DexCom’s total debt increased from $0.3 billion in 2017 to $1.1 billion in 2019, while its total cash remained around $0.4 billion over the same period. The company also generated close to $314 million in cash from its operations, and it appears to be in a good position to weather the crisis.

CONCLUSION

Phases of COVID-19 crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-September 2020: Poor Q2 results for many companies, but continued improvement in demand and a decline in the number of new cases and progress with vaccine development buoy expectations

Going by the historical performance and in view of the strong rally in DexCom stock since late March, we believe that the stock has little room for growth in the near future.

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