DexCom announces a 4-for-1 stock split. Here’s what investors need to know.
DexCom ( DXCM 2.14% ) has revolutionized the lives of people with diabetes. The company introduced the first real-time Continuous Glucose Monitoring (CGM) system in 2006, raising the standard of care for a generation of patients.
DexCom’s strong business performance is reflected in its soaring share price. Over the past year, shares have risen about 38%. That’s impressive on its own, but zooming out highlights even stronger growth: stocks are up 482% in the past five years and soaring to a jaw-dropping 4,550% in the past decade.
On Friday, DexCom announced plans to split its shares for the first time in company history. Announcement follows 20-for-1 stock split announcements from tech giants Alphabet and Amazon. The news has some investors taking a fresh look at the medical device maker. Let’s recap how a stock split works and what it means for existing and potential DexCom investors.
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The details
DexCom’s Board of Directors Approved a 4-for-1 Stock Split. If Supported by Shareholders at the Company’s May 19 Annual Meeting, the Split Will Amend DexCom’s Updated Certificate of Incorporation and will increase the total number of shares from 200 million to 800 million.
Assuming the measure passes, shareholders of record as of May 19 will receive three additional shares for each share they hold. DexCom currently trades at around $480 per share; after the split, investors will own four shares worth approximately $120 each. The stock is expected to begin trading on an allocation-adjusted basis on June 10.
Investors will not need to take any further steps to receive their additional DexCom shares. Brokers handle all the details behind the scenes so that additional shares simply appear in investors’ accounts. It should be noted that the newly issued shares may not be immediately available on June 10. Timings can vary slightly from brokerage to brokerage, so it often takes several days for new post-split action to reflect in investors’ accounts.
How do investors profit from a stock split?
From a mathematical point of view, the total value of the shares held by each investor will not change. One DexCom share currently earning $480 will be worth the same amount as four shares post-split priced at $120 (4 x $120 = $480). Imagine a pizza: it doesn’t matter if it’s cut into eight or 16 pieces, as long as the size of the underlying pie remains the same.
Common thinking on Wall Street suggests that stock splits increase demand for a company’s stock. It comes down to investor psychology: some potential buyers who are hesitant to shell out close to $500 for a single stock may be more willing to buy stocks that trade closer to $100. History suggests, however, that the long-term impact of stock splits is outweighed by a company’s actual performance. The good news for investors is that DexCom’s trading performance is impressive.
Does that mean DexCom stock is a buy?
Investors shouldn’t buy DexCom stock just because the company has launched a stock split. But there are other reasons to consider investing in this medical device manufacturer. The company’s most recent financial report presents a pretty compelling case.
In 2021, DexCom generated revenue of $2.45 billion, up 27% year over year. Meanwhile, its adjusted operating profit of $266 million was in line with the prior year figures. The results came even as the company invested heavily in the launch of its hospital-based CGM system, which received breakthrough device designation earlier this month from the Food and Drug Administration.
DexCom looks set to continue growing. In mid-March, the company’s newest CGM device, the DexCom G7, received the European Conformity Mark (CE), allowing sales within the European Union. The company plans to launch the DexCom G7 in Europe in the coming weeks.
The Centers for Disease Control and Prevention report that more than 415 million people worldwide are living with diabetes. This number is expected to exceed 500 million by 2040. DexCom pioneered CGM technology, becoming a global medical leader. Given the large and growing market of patients who could benefit from its devices, DexCom lands squarely in the buy column.
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