DexCom, Inc. (DXCM)

The methods disagree: one places the value today above the price ($86) and the other below.

Today — expensive, no margin of safety: at $86 trades ~7.1% above its value discounted to today (~$80); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($100) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$50.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($86) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (9.3%/year) is in line with our base case (10.5%/year) → the price is consistent with the projection.

That growth implies ~$1.6 bn of owner earnings in year 5 (vs ~$1.6 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on NOPAT (EV/NOPAT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

A high-growth medical device business (continuous glucose monitoring): valued at the enterprise level on EV/NOPAT over after-tax operating income, with cash and debt in the bridge. Rolling grid: the base year is the real TTM (revenue $4.97bn to Jun-2026, XBRL), with a GAAP operating margin of 22.9% and net income of 20.1%. Year 1 is not extrapolated from the trajectory (which ran +24.5%/+11.3%/+15.6%/TTM+15.5%, a noisy band): it anchors to the revenue guidance the company raised on 30-Jul-2026 (8-K, Item 2.02) — $5.18-5.25bn, +11-13%, midpoint +12.0% — consistent with its own non-GAAP operating margin guidance (~23.5-24%) and non-GAAP gross margin (~64%) for 2026, which confirms the margin expansion trajectory already visible in the TTM. From year 2 onward the path decelerates smoothly toward +9.0% by year 5 (12.0%→11.3%→10.6%→9.8%→9.0%, steps of ~0.7-0.8 points, without jumps), supported by an addressable market still very lightly penetrated: 589 million adults with diabetes worldwide (853 million projected by 2050) and, in the US alone, more than 25 million people with type 2 diabetes not using insulin that Stelo (the over-the-counter glucose sensor launched in 2024) is only beginning to reach. The GAAP operating margin keeps expanding with operating leverage, from 22.9% (TTM) to ~26.0% by year 5 — consistent with today's non-GAAP guidance and without assuming a discontinuous jump. Cash does not accumulate: the surplus is returned almost entirely via buybacks (real retention ≈21% of today's FCF: TTM buybacks $1.10bn on real TTM FCF of $1.41bn), so it is modeled with an explicit share path (net reduction ~2.5%/year decelerating to ~1.0%/year, more moderate than the elevated pace of the recent half, so as not to extrapolate a peak) rather than accumulating cash.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $100 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $86, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $100 in 5 years and a required return of 4.5% annually, the maximum to pay today is $80. Against the current market price ($86), the margin of safety is -7.1% (trades above the maximum → a premium is paid) and the total return at that price would be 3.1% annually.

• Multiple vs. quality. EV/NOPAT 38× for a business with a real moat, expanding margin and a long growth runway from low market penetration.
• Reverse-DCF. The inverse approach shows what growth rate the price implies today, to contrast it against the projected base trajectory.
• Margin of safety. No margin of safety: at this price capital is preserved, but it is not bought below its value.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (122%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• ROIC exceeds the cost of capital. ROIC well above the 10% bar, driven both by growing operating profitability and by low invested capital after years of aggressive buybacks.
• Margin and stability. GAAP operating margin in sustained expansion (13.4%→22.9% over four years); earnings still carry some noise from non-recurring items (the 2025 patent litigation).
• Cash quality. Real FCF (OCF minus capex) TTM $1.41bn, in strong expansion from $305M in FY2022; TTM OCF ($1.75bn) exceeds TTM net income ($1.00bn), a sign of cash-backed earnings.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

The engine of a medical device company like DexCom is the volume of new customers (the installed base) plus the product-generation migration (G6 to G7/G7 15 Day, which sustains the price per sensor). In 2025 the company added between 600,000 and 700,000 net customers to its worldwide base, not counting Stelo customers (a distinct over-the-counter channel, lower priced and without a prescription). International growth is currently running ahead of the U.S., reflecting a still-lower penetration outside the domestic market.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Real, not nominal. Growth is real and double-digit, with a verifiable organic component (+12% organic in the most recent quarter, excluding FX).
• Growth engine. New-customer volume (600,000-700,000 added in 2025) plus product-generation migration and the opening of Stelo toward a new market.
• Deceleration and cycle. Decelerates from +24.5% (FY2023) to guidance of +11-13% for 2026; still high growth for the company's size.

• Relevant in 10 years (recurrence). Diabetes is a chronic condition requiring continuous monitoring; usage is recurring and growing within the diagnosed population. High recurrence.
• Pricing power. The price per sensor is sustained by negotiated reimbursement, not by free-market elasticity; Medicare competitive bidding from 2028 introduces pressure on that mechanism.
• Moat and its direction. Wide moat (technology + reimbursement) and stable today, but with a new structural threat within the very reimbursement mechanism that sustains it.
• Capital cycle. A market concentrated among a few large players (Abbott, Medtronic, Roche); reimbursement and patent barriers limit new capital entry, though January 2026 FDA guidance broadens the competitive field toward general wellness devices.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)79.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 122% of ROIC
• ✓Value creation (ROIC − 10% bar)+36pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.3x
• ✓Float / working capitalFrees up cash $0.1 bn (float / negative WC)
• !Dilution (SBC % of revenue + shares)SBC 3.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. Positive net cash position (~$704M): $1.95bn in cash and marketable securities against $1.24bn of low-coupon convertible notes, with no bank debt or credit line drawn.
• Coverage and cash. Ample liquidity and real FCF in expansion ($1.41bn TTM); ample capacity to fund the capacity expansion and buybacks at the same time.
• Pending regulatory risk. The FDA warning letter (Mar-2026) and Medicare competitive bidding (from 2028) are regulatory risk tails, not balance-sheet ones.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Skin in the game. Insiders as a group ~5%; no controlling shareholder. The largest holders are passive institutions (Vanguard, BlackRock).
• Capital allocation. Disciplined capex into capacity (Ireland) and aggressive buyback of the surplus; no dividend or material M&A to flag.
• Integrity / normalization. Guidance was raised transparently in the earnings release, with both anchors (revenue and margins) disclosed; the patent litigation with Abbott was settled and its non-recurring effect on margin was disclosed.

• There is no large drop in the stock suggesting panic or an unpriced event — 2026 revenue and margin guidance was raised in the most recent quarter.
• The known structural risk (Medicare competitive bidding from 2028) is a distant calendar event, not a problem with today's business; the market may be weighting it more heavily than warranted for a cash flow that starts in 2028.
• The FDA warning letter (March 2026) is recent and carries no production restriction; if it generates some market over-caution without escalating, it would be a transitory motivated seller.

There is no clear, large source of discount: the price largely reflects the fundamentals (strong growth, expanding margins, recently raised guidance). Whatever margin exists is modest and depends on the market over-weighting the 2028 reimbursement risk.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-23% total): the margin of safety protects the downside. The bull (+8%/year, +47% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Medicare competitive bidding (DMEPOS). The structural disconfirmer: reimbursement prices set from 2028 at the 75th percentile of winning bids, with the company itself anticipating a decline in Medicare reimbursement starting then.
• FDA warning letter. Manufacturing deficiencies at the San Diego and Mesa plants (Mar-2026); no production restriction today, but risk of escalating.
• Competition and regulatory broadening of the competitive field. Abbott, Medtronic, Roche, LifeScan, Ascensia, plus general-wellness entrants enabled by January 2026 FDA guidance.
• Medicaid cuts. The 2025 budget reconciliation law reduces coverage and tightens eligibility requirements, with up to 11.8 million additional people estimated to be without health coverage by 2034.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 46% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 11% at a multiple/growth of 3.6 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 3% (EBIT/EV) + ROIC 46% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 9%, in line with our 11%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -5%/yr, bull-scenario ceiling +8%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 9%, within what we project (11%) — the story squares with the numbers.