In the US, there are currently more than 34 million Americans with diabetes.  Across the globe, it’s estimated there are 422 million people that are diabtetic.

This disease is unfortunately expected to grow at an alarming rate over the coming decades. The International Diabetes Federation forecasts that there will be 578 million adults with diabetes by 2030, and 700 million by 2045.

Therefore, it’s no surprise that the medical device companies focused on the treatment of diabetes have grown substantially in the past 20 years and that this growth is expected to continue.  In 2019, the US diabetes market reached a value of about $49.4 billion.

Which is why today I’m analyzing two companies operating in this industry, DexCom (DXCM - Get Rating) and Senseonics (SENS - Get Rating), to see which is a better stock right now.

The bull case for DexCom

DexCom is a medical device company that focuses on the design, development, and commercialization of glucose monitoring systems for people with diabetes. Shares of DexCom are trading at about $363, which means it has returned almost 500% in the last five years. In the last year, it has gained 79%, easily crushing broader market returns.

The company is among the most well-known players in the CGM (continuous glucose monitoring) space and its flagship product is the G6 CGM device. DexCom said it plans to release the G7 CGM device in the second half of 2021 which will be a key revenue driver for the company.

In 2016, DexCom increased sales by 44%. This growth stood at 25% in 2017, 44% in 2018, and 43% in 2019. In 2020, total sales were up 31% year over year. Revenue growth in the last year was attributed to a record number of new patient additions.

In Q4, the company reported sales of $569 million, up from $463 million in the prior-year period. Its sales in the U.S. were up 20% while international sales rose 35% to $117 million in the December quarter.

DexCom managed to report a gross margin of 70.2% in Q4 which was its highest-ever in the last five years. Adjusted EBITDA was $159.2 million, indicating a margin of 28% while net income stood at $90.4 million or $0.91 per share.

DexCom significantly improved its operating cash flow in 2020 and ended the year with a cash balance of $2.7 billion.

In 2021, the company has forecast sales between $2.21 billion and $2.31 billion, indicating a year-over-year growth between 15% and 20%. This suggests the stock is valued at a forward price to sales multiple of 15x which is steep. The stock is also trading at a high price-to-earnings ratio of 154x.

The bull case for Senseonics

Senseonics Holdings is a diabetes company valued at a market of over $1 billion. However, the stock derived a significant portion of its market value in January 2021 when it rose by a stellar 80% during a single trading session.

The medical technology entity is also involved in the CGM space and shares of the company rose after it disclosed a partnership with EmblemHealth – one of the largest non-profit health plans in the U.S.

This partnership will provide Senseonics with access to 2.9 million EmblemHealth members in the regions of New York, Connecticut, and New Jersey.

Shortly after this partnership was announced, Senseonics CEO Tim Goodnow said, “We are excited to see additional coverage for Eversense and appreciate the payer community’s recognition that CGM is now standard of care for patients using insulin to manage their diabetes.”

Analysts tracking the company expect Senseonics to increase sales to 159.6% to $12.85 million and by 155.4% to $32.82 million in 2022. This means its trading at a forward price to sales multiple of 85.6 which indicates the stock is grossly overvalued.

The final verdict

If you are looking for stable returns, you should place your bets on DexCom. It has a huge customer base, expanding margins, and robust top-line growth. Further, analysts have a 12-month average price target of $467 for DexCom, indicating it has 27% upside potential.

Alternatively, Senseonics is a company that is dependent on just a few large customers. Though it might gain big on another healthcare partnership, which makes it a stock to consider for investors with a higher risk appetite, analysts tracking the stock have a 12-month average price target of $0.88, which is 74% below its current trading price.

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DXCM shares were trading at $362.06 per share on Tuesday morning, up $0.13 (+0.04%). Year-to-date, DXCM has declined -2.07%, versus a 6.28% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditya Raghunath

Aditya Raghunath is a financial journalist who writes about business, public equities, and personal finance. His work has been published on several digital platforms in the U.S. and Canada, including The Motley Fool, Finscreener, and Market Realist. More...

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