Why DexCom Shares Took Flight

Why DexCom Shares Took Flight

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of DexCom Inc. , a medical device company focused on creating continuous glucose monitoring systems, skyrocketed as much as 27% after reporting its second-quarter earnings results.

So what: For the quarter, DexCom delivered a huge surge in revenue -- 53% to be exact -- to $35.8 million, although product revenue was the real star, up 65%. The company's quarterly loss narrowed by a third to $0.14 per share from $0.21 per share in the year-ago period, but includes quite a few one-time expenses. With those pulled from the equation, DexCom lost just $0.02 per share on an adjusted basis. Comparatively, the Street had expected revenue of just $31 million and an EPS loss of $0.15.

Now what: I have to eat some crow here and admit that this quarter was a lot better than I anticipated from DexCom. On paper, DexCom's potential market is huge with some 25 million people in the country living with diabetes and close to 80 million others in the pre-diabetic stage. However, my initial contention that DexCom's surge is occurring without any bottom-line profits remains valid. Revenue growth is surging and losses are narrowing, but we've yet to see DexCom report a profit -- and it may still be a while before this happens given the fierce competition within the sector over monitoring devices. As such, and following such a huge run higher, I'd suggest sticking to the sidelines until such time as DexCom can put its business in the black.

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