The market has discounted a fair number of stocks over the last few years, and some for good reason. At the same time, share price alone tells you relatively little other than what the broader market seems to think the stock is worth at that given moment in time. A stock can easily be overvalued or undervalued, and it's important to understand the drivers behind the stock's performance before you decide whether it's a good fit for your portfolio.
If you're looking for quality businesses trading on sale, there are plenty of contenders to consider. Here are two such magnificent growth stocks that you can buy at a discount right now.
1. DexCom
DexCom (NASDAQ: DXCM) is known for its range of continuous glucose monitoring (CGM) devices, which enable diabetics and even pre-diabetics to track blood sugar levels to mitigate adverse events. Investors have been particularly hard on this stock recently, driving shares down by approximately 45% from the beginning of 2024. A stock trading on sale should never be the main reason to buy or sell shares, and it's important to probe deeper to determine what factors are moving the needle.
In the case of DexCom, the company maintains a considerable market share of the vast and growing multibillion-dollar addressable CGM industry. It's consistently profitable, and revenue is growing steadily. The biggest challenge that DexCom is facing, and the likely reason behind the volatility that has afflicted shares in recent months, is the continued emergence and blockbuster success of glucagon-like peptide-1 (GLP-1) agonist drugs.
GLP-1 drugs have been around for a long time, but more consumers and investors alike have been alerted recently to the potential of these medicines for use in chronic weight management as well as diabetes management. While GLP-1 drugs can be incredibly effective at treating diabetes, including enabling better insulin production and managing the amount of sugar the liver produces, they do not replace the need for a CGM. A CGM is used to access real-time information about how a patient's blood sugar levels are doing. If anything, these tools can go hand in hand with GLP-1 drugs.
The idea that these drugs would somehow eliminate the potential of the CGM market appears well overdone. A few other elements that have likely driven some investors to drop shares of the company include a slight adjustment to its annual guidance in the recent earnings report and the fact that rebates for its flagship G7 CGM were implemented faster than expected, which resulted in a short-term hit to revenue.
For what it's worth, DexCom is continuing to roll out new products and expand its growth story. And its top and bottom lines are still in good shape. Case in point, in the second quarter of 2024, DexCom delivered 15% year-over-year revenue growth to $1 billion, while its net income soared by a notable 24% to $143.5 million. Broken down by region, U.S. revenue grew 19% from one year ago, while international revenue increased 7%. The company also had cash and investments to the tune of $3.1 billion at the end of the quarter, while its revolving-credit facility remained unused.
DexCom recently launched the first-ever, over-the-counter glucose biosensor approved in the U.S., called Stelo. The Stelo biosensor is available for users 18 and older who are not on insulin. This effectively opens up DexCom's access to a market of 125 million Americans who either have type 2 diabetes but don't need insulin or are still prediabetics. The sensor sends personalized glucose insights straight to the user's smartphone and features up to a 15-day wear time. Stelo also has flexible payment options including a recurring $89 monthly subscription or a pay-as-you-go approach where a user purchases two sensors in a single pack for a flat fee of $99.
The use cases for CGMs go far beyond just type 1 diabetes, although most current CGM users fall into this category. This creates an extensive and still untapped total addressable market (TAM) for DexCom even in a fragmented space with growing competition. With solid financial footing and a growing portfolio of CGM devices that target every segment of the diabetes patient population, there still seems to be room to run here. The idea that DexCom's growth story is somehow a thing of the past seems shortsighted.
Investors may want to consider even a modest investment in the stock at its downtrodden price when adding to a well-diversified portfolio.
2. Bill Holdings
Bill Holdings(NYSE: BILL) specializes in financial-automation software for small-to-midsize businesses. The stock is down about 32% from earlier this year not because of any particularly alarming news or serious financial missteps that the company has reported. Rather, the stock's performance would appear to be tied to a range of factors, including ongoing volatility among growth-oriented businesses, particularly those that are still working to get to consistent profitability.
The idea behind Bill Holdings' business is to provide the virtual back office that small and medium-sized businesses need to function smoothly. From paying suppliers to collecting payments from clients, the software it provides is designed to be a full-service solution to daily essential operations for companies across a range of sectors. These solutions include automation software for accounts payable and receivable, including managing digital workflows and documentation.
Bill Holdings also provides software services for expense management, as well as optimizing payment services for sources such as card payments, ACH payments, cross-border payments, checks, and invoice financing. Bill Holdings makes most of its revenue from subscription fees and transaction fees. Subscription revenue is based on annual as well as monthly subscriptions charged to customers, while transaction revenue involves interchange as well as transaction fees which could be fixed or variable.
Examples of activities that would accrue transaction fees for the company include invoice financing, invoice creation, card payments, and ACH payments. A smaller portion of revenue is derived from interest on funds it holds for customers when it processes payment transactions and deposits that money into a Bill Holdings bank account until the funds are credited to the receiver.
Bill Holdings reported its results for its fiscal 2024 in August. As of the end of the company's fiscal year, 474,600 businesses around the world were using its software solutions. Total revenue in the 12-month period rose 22% year over year to $1.3 billion. Core revenue, comprised of subscription and transaction fees, jumped 19% year over year to $1.1 billion. Interest on funds held for customers, known as float revenue, was $167.4 million. Bill Holdings also reported a gross profit of $1.1 billion for the 12-month period.
Bill Holdings is still not profitable under generally accepted accounting principles (GAAP). However, the company shrunk its net loss to $28.9 million, compared to $223.7 million in its fiscal 2023. Non-GAAP net income for the 12-month period totaled $244 million. On another positive note, Bill Holdings is cash flow positive, an important profitability metric for investors to pay attention to. The company generated free cash flow totaling around $258 million in fiscal 2024, up 65% from fiscal 2023.
Meanwhile, management estimates that its total addressable market includes more than 70 million small businesses and sole proprietors globally, and $344 billion in software spending by small and medium-sized businesses around the world. Further economic difficulties could curtail spending by smaller enterprises, but most can't afford to sacrifice essential aspects of operations like payment-management software.
The company looks to have a solid growth runway in a widening addressable market to pursue, and its financials are rapidly going from strength to strength. These green flags could induce some investors to scoop up shares of Bill Holdings at discount.
Should you invest $1,000 in DexCom right now?
Before you buy stock in DexCom, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and DexCom wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $743,952!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of September 23, 2024
Rachel Warren has positions in DexCom. The Motley Fool has positions in and recommends Bill Holdings. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
