Down more than 50% from highs, is DexCom stock a buy?

A top health stock to own over the years has been DexCom (DXCM 1.18%). The company makes continuous glucose monitors (CGMs) that help diabetics track their glucose levels. CGMs are necessary devices for many people, especially those who have type 1 diabetes. And with the increasing number of people with diabetes in the world, investing in a company that makes these devices has generally proven to be , to be a great investment: DexCom stock is up more than 560% over the past 10 years.

2024, however, was a different story. Healthcare stocks are down more than 50% from their highs after a steep selloff following the latest earnings report. When a top growth stock goes into a steep decline, it can be a great buying opportunity. It can also be a sign that something is terribly wrong with the business.

Let’s examine which category DexCom might fall into.

What drove DexCom’s massive selloff this year?

DexCom hasn’t performed well this year, but when it reported earnings a few months ago, the wheels really came off the stock.

On July 25, the company released its latest earnings numbers. It wasn’t all bad, as sales for the June quarter rose 15% to just over $1 billion. The more worrying development was a cut in guidance for the full year; DexCom’s management estimated annual revenue of no more than $4.05 billion, which is considerably below even the low end of its previous guidance of $4.2 billion to $4.35 billion.

What alarmed analysts and investors was the reason behind the change: It was largely due to a restructuring of the sales force. It’s a strange reason. Some analysts have questioned whether this is really due to other factors, such as an increase in the use of GLP-1 weight loss treatments, which may have caused some people to no longer need to track their levels. glucose.

Have markets overreacted to bad guidance?

When a stock drops more than 40% in a single day, as DexCom did on disappointing guidance, it’s hard not to call it an overreaction by the markets. It’s not as if the company’s business is in trouble and suddenly all of its growth prospects are in doubt. DexCom is still a leading provider of CGMs, and while analysts may not have liked the company’s response to lowering guidance, that doesn’t mean it isn’t true.

As an example, take Abbott Laboratorieswho also makes CGMs. In its latest earnings results, it actually updated its guidance on strong results. Its business is broader, but diabetes care is a key reason why it is growing so well. If there was any slack in CGM demand, it seems unlikely that Abbott would have improved its guidance. This leads me to believe that there may be other factors, such as those dealing with the sales team, that may indeed have an impact on DexCom’s guidance.

DexCom has been a great growth stock for years. At the very least, investors may have wanted to wait for more than a short-term development and trend before pulling the plug.

Should you buy DexCom stock today?

DexCom’s business may be experiencing a bit of a slowdown right now, but that doesn’t mean it’s in bad shape for the long term. It’s trading near a 52-week low, and as long as you’re willing to buy and hold, now may be a good time to buy the stock.

Always resist the urge to make a snap decision based on a quarter or guidance adjustment. But DexCom still looks like a good stock to own, and this recent selloff allows you to buy it at a much more attractive price.