What’s wrong with this picture?

What’s wrong with this picture?

Let’s see if we’ve got this straight, yesterday Dexcom (NASDAQ:DXCM) released earnings which by nearly every measure were fantastic. The company reported a profit of 2 cents per share while analysts were projecting a loss of 3 cents. Revenues meet forecasts and the company continues to grow share while selling more sensors to existing customers. The pipeline is robust with systems that integrate with a patient’s smartphone, while sensor accuracy continues to improve.

Naturally it makes sense that shares of the company are getting hammered today, at least in early trading. Now some may say this is just profit taking as shares of Dexcom are up over 34% the past 12 months and over 10% in 2015 alone. The company now has a market cap approaching $5 billion and by all measures is executing very well. Add to this their talented, experienced management team and the fact they have the best continuous system available.

Diabetic Investor suspects that investors may be somewhat disappointed not that the company isn’t doing well, rather the company is becoming a more expensive takeover target. However while the company would listen to offers unlike so many others in the wacky world of diabetes devices they are not actively looking to be acquired. Unlike many in devices they are actually running the company, very well we might add, not to become a more attractive acquisition rather for long term value. To paraphrase something we state regarding the insulin pump market, anyone can develop a continuous glucose monitoring system yet it takes real talent to run a CGM company and talent is something Dexcom has in abundance.

It could well turn out that Dexcom stakeholders are rewarded as it would not surprise Diabetic Investor if someone came along and made an offer for the company. The simple fact is Dexcom gets it and is properly positioning the company for not just the future of diabetes management but also the changes coming to reimbursement. Dexcom knows that in the future outcomes will matter not just for the patient but also in terms of how their system is reimbursed. They see with the coming of interconnected diabetes management (IDM) their system can prove invaluable at helping patients achieve better overall outcomes.

Yes there are limits to where Dexcom can go but those limits are still years away. Besides all their relationships with insulin pump companies who are integrating their pumps with the Dexcom CGM, a greater percentage of patients following multiple daily injection (MDI) are adopting CGM. Although not mentioned much anymore the company can grow even more with systems designed to be used in a hospital and not just in the ICU unit.

Perhaps the biggest problem facing the company is matching previous performance and meeting the ever increasing expectations of analysts. Now by our way of thinking this is the right problem to have and is a vast departure from the issues facing other diabetes device companies. No it won’t be all sunshine as this being the wacky world of diabetes something always goes wrong. The difference between Dexcom and other device companies is they have a team that knows how to deal with the issues that could pop up.

Think of it this way would you rather bet on a team that’s been there before, has already won championships and understands not just how to develop a strategy but how to execute that strategy or would you rather bet on team that perhaps looks good on paper but hasn’t been there or done that. To put in hockey terms the Chicago Blackhawks suffered a major blow when their star and MVP candidate Patrick Kane went down with a shoulder injury and is now out for 12 weeks. As large a blow as this is for the Hawks this talented, experienced team has been there before and by our way thinking can still take home Lord Stanley’s Cup.  The road ahead has become more difficult for sure but we wouldn’t bet against them either, just as we wouldn’t bet against Dexcom. Like the Hawks, Dexcom has the talent and experience to win multiple championships no matter what comes their way.