Dexcom
A durable diabetes tollbooth with rising cash economics and execution watchpoints
Dexcom is the category pioneer in real‑time continuous glucose monitoring with a growing installed base, expanding reimbursement for Type 2 diabetics, and a product cadence that improved unit economics in 2025. The company exited 2025 with 16 percent revenue growth to 4.66 billion dollars, GAAP operating margin near 20 percent, and strong free cash flow driven by a shift to the 15‑day G7 sensor and scale efficiencies.
Management guides to 11 to 13 percent revenue growth and 22 to 23 percent non‑GAAP operating margin in 2026, which supports long duration cash generation if execution remains tight.
Quality is underpinned by high recurring sensor revenue, deep integrations with leading automated insulin delivery systems, and increasing access for basal and non‑insulin Type 2 populations, including an over‑the‑counter Stelo offering.
Competitive intensity from Abbott remains elevated in both prescribed and OTC markets, and 2025 introduced regulatory and software quality issues that we treat as a real but manageable risk given remediation and continued FDA clearances.
Financially, Dexcom holds net cash, generates robust free cash flow, and has been repurchasing shares while investing in new capacity in Malaysia and Ireland to sustain growth and lower cost. Our base case values the business on TTM free cash flow with a disciplined multiple given competitive and regulatory pressure.
Does Dexcom have a strong competitive moat?
Dexcom’s moat is multi‑factor. Intangible assets 90/100 (25 percent weight): strong clinical brand built over two decades with firsts in iCGM and prescription‑free biosensing (Stelo), and FDA approvals such as G7 15‑Day and Smart Basal that reinforce regulatory and clinical credibility.
Switching costs 85/100 (30 percent weight): tight integrations with Omnipod 5, iLet, and Tandem ecosystems make Dexcom a preferred CGM for automated insulin delivery users, and long‑term data in Clarity plus Share/Follow networks raise inertia for patients and caregivers.
Network effects 72/100 (15 percent weight): Share/Follow enables up to 10 followers per user and provider connectivity, which increases engagement and perceived safety, modestly compounding product value as the user base grows.
Cost advantage 72/100 (15 percent weight): the 15‑day G7 improves per‑day cost and gross margin through fewer insertions and logistics touches, with additional scale from Malaysia and future Ireland manufacturing likely to reduce COGS over time. Abbott’s larger scale tempers this advantage.
Efficient scale 88/100 (15 percent weight): CGM is highly concentrated, dominated by two players with significant fixed regulatory and manufacturing barriers, which discourages smaller entrants and supports rational R&D intensity.
Weighted together, we score the moat at 83. Key erosion risks are price competition from Abbott in OTC and basal segments, regulatory oversight following the 2025 warning letter, and any integration gaps as partners update AID systems.
Does Dexcom have pricing power in its industry?
Dexcom sustains premium positioning in intensive insulin users via feature set, AID compatibility, and data services, but list price increases are constrained by payer dynamics and Abbott’s aggressive pricing, particularly in OTC. Margin expansion is therefore coming more from mix and unit economics than headline price.
The G7 15‑Day clearance and Smart Basal expand value delivered per sensor and can support ASP stability while lowering cost per day. OTC Stelo is priced to expand the market rather than maximize near‑term margins at 89 to 99 dollars per month.
We view latent pricing power as moderate in core segments and low in consumer OTC, with overall strength supported by differentiation.
How predictable is Dexcom's business?
The model is highly recurring, driven by continuous sensor replacement on multi‑million user bases, and supported by widening reimbursement for basal insulin and non‑insulin Type 2 populations. 2025 delivered 16 percent revenue growth to 4.662 billion dollars and margin expansion, and 2026 guidance calls for double‑digit growth and stable high‑60s gross margin on a non‑GAAP basis.
Expanded Medicare coverage for basal insulin and the OTC funnel increase the addressable market and smooth demand across cycles. Predictability is only partially offset by periodic product transitions and AID integration timelines.
Is Dexcom financially strong?
Dexcom ended 2025 with about 2.0 billion dollars in cash and short‑term marketable securities, against 1.25 billion dollars of 2028 convertible notes, implying net cash near 0.75 billion dollars and ample liquidity.
TTM operating cash flow of about 1.44 billion dollars and capex of about 364 million dollars yield free cash flow near 1.08 billion dollars, a roughly 23 percent FCF margin. The revolver is undrawn. This balance sheet profile and cash generative model provide resilience through regulatory or competitive shocks.
How effective is Dexcom's capital allocation strategy?
Capital is being directed to high‑return growth: scaling lower‑cost manufacturing in Malaysia and building a European plant in Ireland, which should support margins and regional access. Management has also returned cash via buybacks, repurchasing about 500 million dollars in 2025 while keeping net cash.
Stock‑based compensation was about 160 million dollars in 2025, reasonable for a firm of this scale but noted for ongoing monitoring. We view the balance between reinvestment, capacity expansion, and repurchases as disciplined.
Does Dexcom have high-quality management?
Leadership transitioned smoothly to 20‑year veteran Jake Leach as CEO on January 1, 2026, following a multiyear succession process. Under his stewardship as COO and President, Dexcom advanced G7 rollout, 15‑Day clearance, AID integrations, Stelo OTC, and Smart Basal.
Offsetting this strong track record, 2025 brought an FDA warning letter tied to quality systems and a Class I software correction of G7 and ONE+ apps, which heightens execution scrutiny. We balance deep domain continuity and a robust product roadmap with the need for demonstrable remediation and sustained quality.
Is Dexcom a quality company?
Dexcom is a good quality company with a quality score of 82/100
- Recurring, global, reimbursement‑backed revenue engine: 2025 revenue 4.66 billion dollars, non‑GAAP operating margin expansion, and 2026 guidance for 63 to 64 percent gross margin and 22 to 23 percent operating margin support durable cash generation.
- Moat rests on multi‑pronged advantages: clinical brand, AID integrations, data network via Share/Follow and Clarity, manufacturing scale, and expanding access for Type 2 including OTC Stelo.
- Execution watchpoints: March 2025 FDA warning letter on quality systems and a Class I software correction for G7 and ONE+ apps in July 2025 increase oversight risk, though Dexcom continued to receive clearances such as G7 15‑Day and Smart Basal.
- Competition intensifying: Abbott’s Libre franchise scales rapidly and now competes in OTC with Lingo and Libre Rio at aggressive price points, raising price discipline demands in Dexcom’s consumer and Type 2 expansion.
- Balance sheet and cash: TTM operating cash flow of about 1.44 billion dollars and capex of about 364 million dollars imply roughly 1.08 billion dollars of free cash flow in 2025, with about 2.0 billion dollars cash and marketable securities vs 1.25 billion dollars convertible notes due 2028. Share repurchases totaled about 500 million dollars in 2025.
What is the fair value of Dexcom stock?
Is Dexcom a good investment at $74?
The following analysis is provided for informational and educational purposes only. It does not constitute financial advice, investment advice, or a recommendation to buy or sell any security. The opinions expressed are based on publicly available information and historical data. Beanvest and its contributors may hold positions in the securities mentioned. Investors should conduct their own due diligence or consult a licensed financial advisor before making any investment decision.