With the company's market cap of $28 billion today, it's important to recognize that DexCom (NASDAQ: DXCM) is already one of the world's biggest medical device manufacturers. It therefore isn't likely to explode higher in value overnight, or even over the course of a couple of years.
If it's going to be capable of making its investors into millionaires, those investors will need to commit a substantial amount of capital to the stock and be patient enough to hold it for the long run. During that period, the company would need to be growing at a moderate to quick pace, and very consistently. Let's assess whether it's capable of doing that before diving into a calculation about what would need to happen.
Would playing the long game be enough?
DexCom makes continuous glucose monitors (CGMs), which you've probably seen people wearing at some point. CGMs are essentially sensors that people with diabetes use to determine with precision when they should use interventions like insulin to regulate their blood sugar to maintain a good state of health and avoid dangerous and damaging symptoms like hyperglycemia.
From a comfort and convenience standpoint, many people prefer using a CGM rather than the traditional method for measuring their glucose level, which involves pricking their finger with a tiny needle to draw out a droplet of blood.
And while DexCom isn't the only major manufacturer of CGMs -- Abbott Laboratories makes a popular device, among other competitors -- it does have an advantage in that it focuses purely on CGMs and the associated accessories rather than making other products as well.
In financial terms, at most it expects to bring in just over $4 billion in revenue for 2024, up as much as 13% from a year prior. It hasn't experienced any sharp drawdowns in its revenue anytime in the last 10 years. Plus, its profits have accrued at a decent pace; the business has increased its quarterly diluted earnings per share (EPS) by 180% over the last five years, reaching $0.35.
While CGMs are no longer new, and the U.S. market for them has been significantly penetrated, management believes that there is still a large unaddressed population which could likely get their device covered by insurance.
At the same time, the company is also expanding outside the U.S. and working to get public insurance schemes to offer coverage for its devices, especially in the European Union In the long run, it may also expand into market segments outside of diabetes care, such as to consumers seeking sensors for general health and wellness. So it shouldn't reach the end of its markets anytime soon, which paves the way for further consistent ongoing growth, at least in theory.
Here's the financial roadmap to investors becoming millionaires
Now, let's do the calculation to see if an investment in this company could make shareholders into millionaires. Let's assume we're interested in the 10-year time frame to evaluate the potential growth of an investment.
On average, Wall Street analysts estimate that the company could grow its EPS at a rate of around 24% per year for the long term; last year, its normalized diluted EPS was $1.30. Therefore, 10 years from now, growing consistently at that rate, it would report EPS of around $11.17.
Right now, DexCom's stock is valued at a price-to-earnings (P/E) multiple of 42. Assuming that valuation holds up over time, it'd have a market cap of roughly $469 billion in 2034, or 1,605% higher than where it is right now. With that magnitude of growth, it'd take an investment of approximately $62,300 for an investor to become a millionaire -- far more than most of us have sitting around, and a fair bit beyond the size of a position that'd be easy to build up with some committed dollar-cost averaging (DCAing).
And that's before even getting into testing the long-term validity of the assumptions about the consistency of growth or the stock's valuation, neither of which is likely to remain correct forever. Those figures might not even stay in the same ballpark that they're in today.
In conclusion, while DexCom might grow plenty, and while it could still be a good investment for the right kind of investor -- assuming its competitors don't box it out -- there is not much of a chance that it'll make anyone a millionaire.
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Alex Carchidi 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.
