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DexCom Stock Falls After Underwhelming Q3 Earnings
Dexcom, Inc. (Nasdaq: DXCM) reported disappointing third-quarter 2024 earnings on Thursday, revealing just 2% revenue growth year-over-year to $994.2 million. This slow revenue expansion—particularly driven by a 2% decline in U.S. revenue—comes as the stock continues to trade at an elevated 46 times earnings, raising concerns about its valuation given the lack of strong growth.
Weak Performance in the U.S. Market
One of the major takeaways from Dexcom’s third-quarter report is the 2% revenue drop in the U.S. market, which represents a critical part of the company’s business. While international revenue increased by 12%, offsetting some losses, overall revenue growth of just 2% pales in comparison to previous quarters, signaling challenges in scaling its core markets. Furthermore, gross profit margins shrank to 59.7%, down from 63.9% a year ago, reflecting operational inefficiencies.
Declining Operating Margins
Dexcom’s operating income also suffered, with GAAP operating margin falling 580 basis points year-over-year to 15.3%. On a non-GAAP basis, operating income fell by 11% from the same quarter in 2023, highlighting that the company’s operational struggles are not limited to top-line revenue. Despite launching new products like the Stelo biosensor and expanding the Dexcom G7 system in international markets, these efforts have yet to materially impact profitability.
Expensive Valuation Amid Sluggish Growth
Dexcom’s high price-to-earnings (P/E) ratio of 46 is expensive for a company whose growth has slowed substantially. With only 2% overall revenue growth and declining operating margins, this premium valuation raises questions about whether the company can justify its stock price, especially if growth in key markets like the U.S. continues to stagnate.
Who Should Consider Dexcom?
Given its seemingly high price and lackluster growth trajectory, Dexcom may not appear to be a cheap-looking stock to buy right now. But given the long-term potential for its medical devices in a growing diabetes market, it can still be a good buy as historically the stock has traded at much higher valuations. Investors should be careful not to push the panic button on the stock just yet.