The Number One Stock on my Watchlist is DexCom $DXCM . This is the Ultimate Growth Stock. If you had invested $10 000 in Dexcom in 2009 during the financial crisis, you would have over $1.2 million today. This is better performance than Netflix or Amazon $AMZN . Dexcom has been one of the best performing stocks in recent years.
Investing in growth stocks is tricky. When you're investing in a value stock, there are different methods that you can use to calculate the intrinsic value, such as discounted free cash flows. But when looking at a growth value, you need to take into consideration future cash flow growths of the company. Warren Buffett tells us, however, that there's no difference between value and growth stocks. If we look at his investments in Coca Cola, it was when the company was growing as a value stock.
Dexcom is here to solve the problem that Coca Cola created, diabetes. Dexcom makes continuous glucose monitors or CGM, which are used by diabetic patients to monitor their glucose or blood sugar level.
Dexcom is not the only company making CGM. Abbott laboratories and Medtronic, the two largest medical makes CGM too and their CGM is much cheaper than the ones made by Dexcom but we need to understand that there is a premium on the Dexcom CGM since they are more effective.
This year Dexcom is launching the Dexcom G7 CGM. This will be a big revolution in CGM. The Dexcom G7 can integrate with numerous devices very easily such as the Tandem insulin pump and even an Apple Watch. The Dexcom G7 has been made with the help of Verily, a company owned by Alphabet, the parent company of Google $GOOG . Google has an investment in Dexcom and even Apple is interested in this company.
The revenues and net income of Dexcom has been growing at fast rates in recent years and it seems that this fast growth will not stop anytime soon. Dexcom has a good balance sheet and they took some extra debt recently and most of their debts are convertible. On one hand, this is bad for shareholders since the shares will be diluted but on the other hand, they are taking advantage of the high stock price to save cash, which is something good.
Is the growth sustainable? The growth of the company is sustainable, free cash flow can grow by more than 50% a year but the stock price is growing faster and this is dangerous. It seems that there is a bubble in this stock. Wall Street is underestimating the effects of this recession on Dexcom sales. Many people have lost their health insurance and may not be able to afford the premium CGM of Dexcom. They would rather use a cheaper one. Dexcom will still grow this year but not as fast as Wall Street is anticipating.
Dexcom stock is still very expensive and I'm waiting for the price to crash to make an investment. I may wait forever but there are better deals out there. I'm not going to invest in an expensive stock just because the company and products are great
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