If You'd Invested $1,000 in DexCom 10 Years Ago, Here's How Much You'd Have Today

Key Points

• DexCom's returns over the past decade have been solid, but not quite on par with the market's.

• The company has encountered some headwinds in recent years that have sunk its stock price.

• Despite the challenges, DexCom still has significant growth prospects and benefits from a moat.

• 10 stocks we like better than DexCom ›

Shares of DexCom (NASDAQ: DXCM), a medical device specialist, have lagged the market this year. However, the true test of a company isn't how it performs over a relatively short period, such as eight months. Anything can happen in the short run that makes even the best businesses stumble. Top stocks, however, can consistently outperform broader equities over long periods, such as a decade. With that said, let's look at how DexCom has performed over the past 10 years and try to determine what kinds of returns it can deliver from here on out.

Image source: Getty Images.

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It's hard to beat the market

DexCom develops and markets continuous glucose monitoring (CGM) systems, a type of device that continuously tracks blood sugar levels. The technology isn't exactly new anymore, and it has enjoyed increased adoption over the past decade, partly thanks to DexCom's efforts. The company is a leader in this niche. DexCom's revenue has grown rapidly over this period, too, and the company managed to turn profitable. But a significant pullback over the past few years has destroyed some of its long-term gains. The result? Though DexCom's returns over the past 10 years haven't been terrible at all, they are below the performance of the S&P 500 over the same period.

DXCM Total Return Level data by YCharts

With a 12.99% annual return since 2015, a $1,000 investment in DexCom would be worth $3,391.56 as of the current date. That's good. But if you had invested $1,000 in an ETF that tracks the performance of the S&P 500, you'd have something close to $4,112.90. That's even better. Notably, the S&P 500's return is calculated with dividends reinvested. Without that, DexCom would still be below, but by a smaller margin.

What the future holds for DexCom

DexCom has faced slowing revenue growth over the past few years, partly due to fierce competition from Abbott Laboratories. Last year, the company also experienced lower revenue per patient, partly due to higher-than-anticipated rebate eligibility. Further, some still see the rise of GLP-1 medicines that help with obesity -- a significant risk factor for diabetes -- as a threat to DexCom's long-term prospects. However, despite these challenges, there are good reasons to be optimistic about DexCom's future. One of them is that, even though its CGM technology has experienced increased adoption, there is still a massive runway ahead.

Abbott Laboratories, DexCom's main competitor, made this clear by pointing out almost two years ago that less than 1% of the world's diabetics use CGMs. Of course, this number varies from one country to another. In the U.S., penetration is higher than in most other countries. However, even in the U.S., there are more than 4.5 million patients on insulin who are eligible for third-party coverage for CGM but still aren't benefiting from the technology.

DexCom ended 2024 with an installed base of approximately 2.8 to 2.9 million patients, representing a 25% increase compared to the previous fiscal year. It has already established itself as a leader in the niche and boasts a network effect thanks to its device being compatible with a host of other gadgets that help diabetes patients, including insulin pumps and pens. The company is likely to capture a decent portion of the remaining market. And again, that's only in the U.S.

Over the long term, the company will benefit from other factors that should expand its addressable market. First, DexCom is constantly innovating. Last year, it launched an over-the-counter CGM device in the U.S. for diabetes patients who aren't on insulin and for people with prediabetes. The company's DexCom ONE, which it introduced a few years ago, caters to more price-sensitive customers in some regions. DexCom's innovative efforts should enable it to target a broader range of patients.

Second, DexCom has benefited from increased third-party coverage worldwide for CGM technology, thanks to its constant demonstration of the benefits of its platform. That should also continue. Third, the medical device specialist can enter new markets as it has in the past. Lastly, the rise of GLP-1 therapies will not destroy DexCom's prospects. As the company has pointed out, physicians tend to prescribe weight management medicines in conjunction with CGM devices for eligible patients. The adoption of its devices remains robust among eligible GLP-1 patients.

With that said, can DexCom outperform the market over the next 10 years? My view is that the company's sell-off over the past few years has gone too far, and at current levels, the stock is attractive given its position in the CGM market, its moat, and the massive whitespace remaining in the industry. DexCom still looks like a buy.

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Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Abbott Laboratories. The Motley Fool recommends DexCom and recommends the following options: long January 2027 $65 calls on DexCom and short January 2027 $75 calls on DexCom. The Motley Fool has a disclosure policy.