DEXCOM INC (NASDAQ:DXCM): A Top Affordable Growth Pick with Strong Fundamentals and Fair Valuation

Investors looking for growth opportunities at fair prices often consider the "Affordable Growth" strategy. This method focuses on companies with good growth potential, solid earnings, and stable finances, all trading at reasonable prices. The goal is to find high-growth stocks without paying too much, while ensuring the business is fundamentally strong. One stock that meets these criteria is DEXCOM INC (NASDAQ:DXCM), a medical device firm known for its continuous glucose monitoring (CGM) systems for diabetes care.

Why DexCom Matches the Affordable Growth Approach

1. Solid Growth Potential

DexCom has a Growth rating of 7, showing its strong past performance and future potential. Key points from the fundamental analysis report include:

• Revenue Growth: Over the last five years, DexCom has achieved an average annual revenue growth of 22.27%, outperforming many in its sector. Recent quarterly growth slowed to 9.30%, but the company is still projected to grow revenues by 14.01% yearly in the future.
• Earnings Growth: Although EPS dipped slightly last year (-2.86%), the five-year average annual EPS growth is 29.25%. Analysts forecast 22.56% annual EPS growth ahead, supporting its growth path.

For the Affordable Growth strategy, steady revenue and earnings growth are essential. DexCom’s ability to maintain high growth while improving profitability makes it a strong pick.

2. Fair Pricing

DexCom isn’t a bargain stock, but its Valuation rating of 5 indicates it’s priced fairly for its growth:

• P/E Ratio: At 44.85, DexCom’s P/E is higher than the S&P 500 average (27.24), but 69.52% of its healthcare peers have higher multiples.
• Forward P/E: The forward P/E of 29.47 is more reasonable, below the industry average (64.05) and close to the broader market (36.42).
• Growth-Adjusted Metrics: The PEG ratio suggests fair pricing, and its Price/Free Cash Flow ratio is lower than 74.33% of competitors.

The Affordable Growth strategy favors stocks priced fairly relative to their growth. DexCom’s valuation, while not low, is justified by its industry position and growth prospects.

3. Strong Earnings and Financial Stability

DexCom’s Profitability rating of 9 highlights its excellent margins and returns:

• Operating Margin (17.22%) and Profit Margin (13.29%) are in the top 15% of peers.
• Return on Invested Capital (14.52%) is well above the industry average (8.14%), showing efficient use of capital.

Its Health rating of 5 indicates minor concerns but no major risks:

• Solvency: A high Altman-Z score (5.34) suggests low bankruptcy risk, and debt levels (Debt/Equity of 0.50) are under control.
• Liquidity: Current and quick ratios (1.52 and 1.35) are acceptable but not the best in the sector, a common trait for growth-focused companies.

Strong profitability supports sustainable growth, while stable finances reduce risk—both key for the Affordable Growth strategy.

Final Thoughts

DexCom’s mix of growth, fair pricing, and high profitability makes it a top choice for investors seeking growth at a reasonable price. While not the cheapest stock, its premium is justified by its leadership in diabetes care and consistent performance.

For more Affordable Growth stock ideas, check the full screener results here.

Disclaimer: This article is not investment advice. Always do your own research or consult a financial advisor before making investment decisions.