DexCom Inc (NASDAQ:DXCM) Embodies the Growth at a Reasonable Price (GARP) Strategy

For investors looking for a mix of solid expansion and fair pricing, the Growth at a Reasonable Price (GARP) or "affordable growth" method presents a good middle path. This method tries to find companies that are increasing their earnings and revenue faster than average while also being traded at prices that do not require flawless future results. By searching for stocks with good growth scores, firm basic profitability and financial strength, and a price that is not too high, investors can seek chances where the market might not completely recognize a company's lasting expansion path.

DexCom Inc (NASDAQ:DXCM) is a top medical device company centered on the design and sale of continuous glucose monitoring (CGM) systems. Its technology is important for diabetes management, a big and increasing global health market. A recent basic review of DexCom shows a picture that fits well with the affordable growth idea, as explained in its full basic report.

Good Growth Path

The central idea of an affordable growth method is, expectedly, growth. DexCom does very well here, getting a high Growth score of 8 out of 10. The company shows a good mix of past results and hopeful future outlooks.

• Past Results: For the last few years, DexCom has shown very good expansion. Revenue has increased at an average yearly rate above 22%, while Earnings Per Share (EPS) has risen at almost 30% per year on average. Even in the latest year, revenue increase stayed firm at 14.2%.
• Future Outlooks: Experts think this speed will keep going. The company is predicted to grow EPS by about 22% each year in the next few years, with revenue increase forecast near 13.5% per year. While these future predictions show a slowing from the very high past rates, they still point to a very good and lasting growth picture, which is exactly what GARP investors want, lasting growth, not just a short jump.

A Fair Price in Setting

Finding good growth is one task, finding it at a fair price is another. DexCom's Price score of 5 shows this detailed balance. On its own, measures like a Price-to-Earnings (P/E) ratio of 36.3 seem high, particularly next to the wider S&P 500 average. However, price must be seen within the company's field and growth picture.

• Field Comparison: DexCom works in the Health Care Equipment & Supplies area, where high growth and new ideas often get high prices. In this group of similar companies, more than 71% have a higher P/E ratio than DexCom. Its Price/Forward Earnings ratio of 26.8 is also lower than almost 75% of its field peers and matches the S&P 500 average.
• Growth Balance: Importantly, the price is backed by the company's growth rate. The PEG ratio, which changes the P/E for predicted earnings growth, shows a fair price. The review states that a higher multiple could be acceptable given the very good profitability and the high predicted earnings growth above 22%.

Supported by Firm Basics

Lasting growth needs a firm base. DexCom's high scores in Profitability (9) and Financial Health (7) give that important support, lowering the risk linked to its growth story.

• Very Good Profitability: The company is very profitable, with margins that are some of the best in its field. Its Return on Equity of 26.4% and Return on Invested Capital of 15.7% do better than over 95% of peers, showing efficient use of money to create earnings. Both operating and profit margins have gotten better in recent years.
• Firm Financial Health: DexCom has a strong balance sheet. Its Altman-Z score points to no bankruptcy danger, and its debt levels are acceptable, with a Debt-to-Equity ratio of 0.47. While some short-term cash ratios are average, the report ends that given the company's very good solvency and profitability, this does not always mean operational cash problems.

Conclusion

DexCom Inc shows an example of the affordable growth investment idea. The company is producing, and is predicted to keep producing, good double-digit growth in both revenue and earnings, meeting the main need for the method. This growth is not priced at a very high level compared to its high-growth field peers, meeting the "reasonable price" part. Also, this expansion is built on a base of very good profitability and a financially sound balance sheet, which adds a level of quality and lowers basic risk.

For investors wanting to look at other companies that fit this picture of good growth, decent basics, and fair price, more results can be seen by using the Affordable Growth screen.

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Disclaimer: This article is for information only and is not financial advice, a suggestion to buy or sell any security, or a support of any investment plan. Investors should do their own study and think about their personal money situation and risk comfort before making any investment choices.