DexCom Stock Split: 1 Stock Split Gives the Stock Much Needed Short Term Rally
Many big tech companies are splitting the shares this year as a way to bring down the share price and make it more accessible to wider pool of investors. Amazon Inc went for 20:1 stock split on June 3, that brought down the share price to just a notch over $120 on 3rd June from a mammoth more than $2400 share price. Alphabet was next to follow the footsteps by announcing split in the same ratio in tandem with the fourth quarter earnings in Feb 2022.
DexCom and Shopify Inc also announced the stock split in the following months to be in the same league, and all of a sudden it seems that stock splits are back in the fashion. At this point, it must be iterated that split do not create any value for the company or the shares technically. It just creates psychological impact on the investors, and those who are on fence are attracted to buy the shares at “lower values”. But, pizza being eaten either in four or eight slices does not matter as long as the underlying pie remains the same.
In this article we will talk about the DexCom stock split and its impact on the share price. We will also talk about the positives and negatives of DexCom business and whether stock split make DexCom a buy at this point?
DexCom Stock Split: Facts About DexCom Share Split
On March 25th, DexCom management announced plans to split the stock for the first time in its trading history which dates back to more than 17 years back. The plan was to put the proposal in company’s annual general meeting on May 19th among shareholders.
The proposal was passed in scheduled annual general meeting and it amended the DexCom’s restated Certificate of Incorporation and increased the number of shares from 200 million to 800 million. Shareholders’ as on record date- May 19th, will get three additional shares for each share they own. As, the number of shares were quadrupled, the share price was reduced in the same ratio to keep the market cap at the same level of $30.4 billion.
DexCom began trading on stock split basis from June 10th 2022. The share price was down 0.9% on Friday, June 10th to close at $293.85 per share. Following the stock split, on Monday June 13th, the shares were expected to open around $72.5, but due to negative market sentiments, it opened further down by about 3.4% at $70.96. The share price further went down to close at $68.06.
The basic purpose of the stock split is to increase the share volume and make it more accessible to wider pool of investors. The same was witnessed in case of DexCom and the share volume almost tripled post stock split. The share volume for DexCom which ranged in between 500 K to 1 million in the past, zoomed to more than 3 million on daily basis post 13TH June. The share volume was 3.3 million on 13th June and went on to touch 6.2 million on 17th June.
DexCom Stock Split: Impact of Split on Share Price
Company’s management motto to go for split in hard times is to attract limelight and split does create a positive psychological impact to give short term push to the share price. The same is evident in case of DexCom Inc. The share price was $68.06 on June 13th, which has shot up 11.12% in last five days and by almost same percentage in last one month. To bring up the context, share prices went down by more than 27% in last one year and is down by more than 45% in last six months. The stock split has proved to be boon for the share price and has reversed the downtrend.
DexCom Stock Split: Positives and Negatives of the Business
DexCom makes highly coveted continuous glucose monitoring (CGM) devices that allow people to trace the glucose level and can be a game changer for people with diabetes. In 2021, company reported revenue of $2.4 billion, YoY growth of 27% and if compared to 2020, it grew at 66%, when sales were only $1.5 billion.
Company being in healthcare business enjoys great margins. The company’s gross margin for 2021 was around 70% at roughly $1.7 billion. What it signifies is that, out of every dollar of revenue, around $0.7 is used to cover operating expenses. It could be very helpful for the long term growth and as its products reach more and more people, it means that its revenue along with profits will exponentially increase.
One big negative is the P/E multiple for DexCom, which stands at 151.95. In this bear market, high growth stocks are the first one to get punished and DexCom is not spared. The stock has fallen 46% in last six months as a resultant of investors getting off from stocks of high P/E multiple. Around six months back, the multiple was more than 300, which has cooled off to 151, but it is still way above healthcare sector average of 20.
One reason for abnormal increase in the P/E multiple is that DexCom reported less than half of the profits it reported in 2020. It is due to the fact that it incurred non cash collaborative research and development fee of around $87.1 million that was not there in previous years. It shows that company is spending on research and development, thinking about the long term growth.
DexCom Stock Split: Is DexCom a Buy After Stock Split?
According to Centers of Disease Control and Prevention, the number of Americans with Diabetes could triple by 2050 and the need to manage the disease will be more crucial. According to Vantage market research, global market for CGM devices are growing at a CAGR of 10.8% and will be worth more than $13.2 billion by 2028. So, there is lot of growth opportunities for DexCom both in US market and International market.
Does stock split make it a buy? definitely no. But split has done its part to make the stock look attractive. Firstly, it not only did put brakes on the downtrend of the stock, but it also reversed the trend and it seems that for a short time frame, DexCom is out of the woods. Secondly, it does make the stock price attractive as it has come down below $100 from price of around $400. It is evident in the fact that stock traded volume has tripled in the last fortnight.
If an investor is there for long haul, like for more than couple of years or better if planning for retirement, DexCom is available at good entry price with lot of growth opportunities after stock split.
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