What Makes DexCom Stock A Better Pick Over This Insulin Pump Maker?

DXCM: DexCom logo

We think that DexCom stock (NASDAQ: DXCM) is currently a better pick than Insulet stock (NASDAQ: PODD), given DexCom’s better prospects and comparatively lower valuation. DXCM stock trades at a P/S ratio of 11x, compared to 14x for PODD stock. We believe that this gap in the valuation of these two companies does not make sense, given that DexCom has demonstrated better revenue growth and profitability than Insulet. This doesn’t imply that Insulet isn’t a good pick. In fact, we find both stocks a good buying opportunity, as discussed below,

Looking at stock returns, Insulet’s -16% return is comparatively better than DexCom’s -21% change over the last twelve months. This compares with a -5% change in the broader S&P 500 index. Note that DexCom saw its stock fall 10% in the last five days after media reports of DexCom planning to acquire Insulet surfaced. [1] While DexCom makes continuous glucose monitors, Insulet develops Insulin pumps that can be connected to CGMs. If the acquisition is successful, it will make DexCom a large player in overall diabetes management.

While both the companies are likely to see continued top-line expansion, DexCom is expected to outperform. There is more to the comparison, and in the sections below, we discuss why we believe DXCM stock will offer better returns than PODD stock in the next three years. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis of DexCom vs. InsuletWhich Stock Is A Better Bet? Parts of the analysis are summarized below.

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1. DexCom’s Revenue Growth Has Been Stronger

  • Both companies posted sales growth over the last twelve months. Still, DexCom’s revenue growth of 26.9% is higher than 14.4% for Insulet.
  • Looking at a longer time frame, DexCom’s sales grew at an average growth rate of 33.6% to $2.4 billion in 2021, compared to $1.0 billion in 2018, while that of Insulet grew at 25.0% to $1.1 billion in 2021, compared to $0.6 billion in 2018.
  • Continued new customer additions are driving DexCom’s revenue growth over the recent quarters amid rising awareness of CGM devices.
  • DexCom is one of the few players, along with Abbott, which has secured the regulatory approvals for its wearable continuous glucose monitoring (CGM) device. There is a high demand for CGM devices that do not require a finger prick, and data can be self-monitored easily. Given the limited competition and a vast pool of diabetic patients (over 34 million in the U.S. alone), the company will likely see strong revenue growth over the coming years.
  • DexCom’s future sales growth will likely be bolstered by the launch of its much-anticipated G7 CGM system in the U.S.
  • Market share gains for its Omnipod system have buoyed Insulet’s revenue growth. The aging population in the U.S. and its rising awareness about diabetes products have aided the demand for Insulet’s products.
  • Our DexCom Revenue and Insulet Revenue dashboards provide more insight into the companies’ sales.
  • Looking forward, both the companies are expected to see their revenue expand at a solid pace over the next three years. The table below summarizes our revenue expectations for the two companies over the next three years. It points to a CAGR of 20.8% for DexCom, compared to an 18.5% CAGR for Insulet, based on Trefis Machine Learning analysis.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to the pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate a return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

2. DexCom Is More Profitable, And It Has A Better Debt Position

  • DexCom’s operating margin of 13.7% over the last twelve-month period is much better than 4.4% for Insulet.
  • This compares with 13.4% and 1.8% figures seen in 2019, before the pandemic, respectively.
  • DexCom’s free cash flow margin of 18.9% is also better than -4.3% for Insulet.
  • Our DexCom Operating Income and Insulet Operating Income dashboards have more details.
  • Looking at financial risk, DexCom’s 7.0% debt as a percentage of equity is lower than 9.4% for Insulet, while its 14.2% cash as a percentage of assets is lower than 35.0% for the latter, implying that DexCom has a better debt position and Insulet has more cash cushion.

3. The Net of It All

  • We see that DexCom has demonstrated better revenue growth, is more profitable, and has a better debt position. On the other hand, Insulet is available at a comparatively lower valuation and has a higher cash cushion.
  • Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe DexCom is currently the better choice of the two.
  • The table below summarizes our revenue and return expectations for DexCom and Insulet over the next three years and points to an expected return of 98% for DexCom over this period vs. a 79% expected return for Insulet, based on Trefis Machine Learning analysis – DexCom vs. Insulet – which also provides more details on how we arrive at these numbers.
  • Although this implies that DXCM is a better pick over PODD, both appear to be very good investment opportunities at their current levels.

While both DXCM and PODD stock may see strong growth, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Medtronic vs. Masco.

What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

Returns May 2022
MTD [1]
YTD [1]
Total [2]
DXCM Return -31% -48% 371%
PODD Return -7% -17% 488%
S&P 500 Return -4% -17% 78%
Trefis Multi-Strategy Portfolio -5% -21% 209%

[1] Month-to-date and year-to-date as of 5/26/2022
[2] Cumulative total returns since the end of 2016

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  1. Insulet Stock Rises on Report of DexCom Acquisition Talks, Lina Saigol, Barrons, May 24, 2022 []