Is this getting out of control?

One of the most difficult things to predict is when a stock hits a ceiling. There are all sorts of technical and financial measures investors use to judge this yet even with these advanced mathematics stock levels often defy any logical valuations. Given what’s going in the diabetes device space we wonder if we are hitting an inflection point. Consider the following;

Insulet market cap is approaching $10 BILLION

Dexcom up some 31% so far as we write is now approaching the $20 BILLION market cap area

Tandem a company that was nearly dead and once had a market cap of less than $250 MILLION is not approaching the $4 BILLION level

On a year to date basis Tandem is up almost 78%, Insulet almost 121% and Dexcom 73% the Dow which isn’t having a bad year is up a miniscule 18.75%

It’s reasonable, more like prudent to ask from a valuation perspective are things getting just a little wacky. Now we will state from the start we haven’t a clue whether these valuations are reasonable or not. As Momma Kliff used to say something is worth what people are willing to pay for it and right now people seem very willing to pay. We will also state empathically that none of the companies have anything but even brighter days ahead.

Tandem has the Control IQ coming, Insulet has the pharmacy channel plus Horizon on the horizon while Dexcom is growing like a weed and has the G7 coming. As crazy as it is as we noted this morning when talking about Dexcom as good as it is now from a business operational and market dynamic perspective the future looks to be as good or better for all three companies.

Even better the competitive landscape is also favoring these three amigos. Medtronic still the insulin pump market leader in terms of installed base is swimming upstream. Abbott like Tandem would like to take the FDA out to the woodshed as the Libre2 remains under consideration. The difference here is everyone fully anticipates the Control IQ to be approved any day and no one not even Abbott has a clue when Libre2 will get here.

Want more positives all three companies are demonstrating uncanny operational excellence when it comes to dealing with the issues that success brings. Dexcom is adding capacity, as is Tandem while Insulet is enjoying the addition of capacity. Yes, all three have experienced blips along the way and all three have dealt with these blips without hurting their long-term strategies.

There is nothing in plain sight that would give anyone cause for concern. This my friends is typically when the bottom falls out from underneath what looks like solid ground. Let’s be very clear we do not see anything negative in the near term that would derail these runaway freight trains. All three are killing it and there is nothing in the public domain that indicates they will stop killing it, all in their own way are killing machines. However we like many of the analysts look at these valuations and wonder if this isn’t getting overly wacky. Now the fact that we actually agree with these analysts is cause for concern as we rarely if ever agree with these people. But as Momma Kliff used to say if that’s your biggest concern I wouldn’t worry too much.

Bottom line here as everyone is wondering ok would we buy at these levels; well we hate to give a non-answer answer but based strictly on the business and not the financial factors the answer is clearly a yes. However after such a jump we do see some money coming off the table which would be a better entry point strictly from a valuation standpoint. The only problem is no one knows when or if this will come. Nor does anyone know when it comes will it be profit taking or the start of a prolonged slide.

The fact is if we knew such things we wouldn’t be sitting here on a very cold sunny day in the beautiful city of Chicago. We’d be laying in the sun somewhere very warm, likely Hawaii, having a very nice person bringing us ice cold Miller Lite. Come to think of it the Caribbean isn’t a bad option either. But since we don’t know such things, we are in that cold yet beautiful city of Chicago drinking Miller Lite.