Is DexCom a Millionaire Maker?

Diabetes is a global epidemic, with more than 537 million people affected worldwide. DexCom (NASDAQ: DXCM) has improved patient lives with technology, and the stock has outperformed the stock market since the company went public. But today, DexCom stock is sitting well below its all-time highs.

The stock recently plunged on a disappointing earnings report. All companies eventually face adversity. If the company can bounce back, the uncertainty can create tremendous investment opportunities, even life-changing wealth.

So, is DexCom a potential millionaire maker to buy the dip on, or are the stock's recent struggles a red flag to avoid?

Here is what you need to know.

DexCom leads an enormous market

Diabetes is a disease in which there is too much sugar in a person's blood. Type 2 diabetes is most common and is caused by factors such as obesity or lack of exercise. Rising obesity rates are a big reason why more people are being diagnosed with diabetes over time. According to the World Health Organization, one in eight people worldwide lives with obesity. Adult obesity has doubled since 1990, and adolescent obesity has quadrupled. Diabetes is becoming increasingly prevalent among young people, and the number of worldwide diabetics could increase from 537 million to a projected 783 million by the mid-2040s.

People with diabetes must constantly manage their blood sugar, traditionally requiring frequent finger pricks for blood testing. DexCom has helped revolutionize diabetes care with continuous glucose monitoring (CGM) devices. Patients wear a patch that continuously transmits blood sugar data to a device or smartphone.

Today, DexCom is the leading CGM company, with an estimated 40% market share. Importantly, CGM products are relatively nascent. DexCom generates nearly $4 billion in annual sales on a user base of just 2.5 million to 2.6 million patients worldwide, a tiny fraction of those with diabetes. DexCom's user base could expand for years to come.

At first glance, that's an opportunity that oozes multibagger-stock potential.

However, new competition is emerging

DexCom stock plunged on its second-quarter 2024 earnings, primarily because it guided for significantly lower revenue growth in 2024 than the market expected.

Management attributed the guidance shortfall to the following:

1. Lost market share in the durable medical equipment (DME) channel where it competes with other devices, such as the FreeStyle Libre from Abbott Labs.
2. Timing of equipment rebates that caused a revenue headwind.

Analysts wondered whether GLP-1 drugs are negatively impacting DexCom's business. Management downplayed GLP-1s, pointing to the above factors.

However, GLP-1 drugs represent a genuine long-term threat to DexCom's upside. These weight-loss drugs have become immensely popular in recent years. Approximately 90% to 95% of people with diabetes have obesity-influenced type 2 diabetes, so lowering the obesity rate would likely also shrink Dexcom's long-term customer base.

Can DexCom still be a millionaire maker?

Additionally, DexCom isn't a small company anymore. The stock's market cap is almost $27 billion even after falling 50%. That means DexCom likely must become an enormous healthcare company to create the investment returns necessary to turn a modest sum into a million dollars or more.

Meanwhile, DexCom's disappointing quarter raises questions about its long-term trajectory. Investors shouldn't judge individual quarters too harshly, but the competitive pressures from other device makers and GLP-1's popularity are worrisome. That's not to say the stock can't be a worthwhile investment. If anything, DexCom's recent drop brought its valuation back down to 40 times its estimated 2024 earnings, which is at least somewhat reasonable for a business poised to grow earnings by nearly 20% annually over the long term.

Yet, the bar is very high when talking about potential millionaire-maker stocks. DexCom won't look the part of a millionaire maker until it puts these newfound concerns to rest.

Should you invest $1,000 in DexCom right now?

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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.