Dexcom, Diabetes and Dollars
09/12/2016 7:00 am EST
The story behind this featured stock is diabetes, which is huge. The National Center for Health Statistics says that 12.6% of all US adults have diabetes, making it the 7th leading cause of death, explains growth stock expert Mike Cintolo, editor Cabot Top Ten Trader.
Dexcom (DXCM) is the developer of a monitor for blood sugar levels that uses a disposable sensor, a transmitter and a smartphone to give patients continuous, real-time information about their glucose levels, including alerts when levels get out of whack.
The Dexcom G5 Mobile Continuous Glocose Monitoring (CGM) System is the latest iteration of the companyâ€™s technology, and it has achieved a significant milestone.
While Dexcomâ€™s CGM monitors have long been approved by the FDA as an adjunct to traditional needle-stick monitoring, in late August, an FDA panel approved the G5 as a standalone replacement for needle sticks.
This change will open the door for Medicare reimbursements, which could mean a major increase in revenue. The announcement caused a surge in investor interest in the company, and gave its stock a boost that lasted until August 3, when a good-not- great quarterly report took the wind out of its sails.
This looks like a temporary situation, however, as the companyâ€™s superior technology (and the size of the target patient pool) make a strong argument for longer-term success.
Technically, DXCM has been a long-term success story since late 2008, with three major corrections along the way. The third correction ran from September 2015 to February 2016, and dropped DXCM from $103 to $48.
The stock recovered quickly, catching fire after the FDA approval, then hit a wall on August 3 when the â€œbadâ€ Q2 report was released.
But DXCM has held up remarkably well, giving back just a few percent from its high and trading sideways in an incredibly tight trading range.
We think that DXCM is likely under quiet accumulation here, and a buy around 91 represents a good risk/reward balance. Use a stop just below the 50-day line at $83.
By Mike Cintolo, Editor of Cabot Top Ten Trader