Let's use DexCom (DXCM) as a poster boy for what's both right and wrong with this market. Here's a company with disruptive technology -- a device to monitor glucose remotely with no finger pricking -- that's pretty much sweeping the Type One diabetes world by storm. The company's got a real edge over the other companies in the field, including Medtronic (MDT), and its device is truly a wonder, as I saw last night with my own eyes when CEO Terry Gregg came on "Mad Money."
Gregg's a proven money maker. He had been president and chief operating officer of MiniMed, another monitoring company, and was instrumental in selling that company to Medtronic for $3.4 billion in 2001. He also served in executive positions with Smith & Nephew (SNN) and Allergan (AGN). He is no stranger to high-quality drug and device companies.
It is true that the patient population that might use continuous glucose monitoring systems is only 1.5 million and there is no epidemic of it, unlike Type 2 diabetes. But only 9% use a continuous monitoring system, so there's huge upside. The accuracy is breathtaking and you can follow the levels remotely, something that every parent of a child with diabetes must want to do.
But here's the rub.
This is a company that is hiring so fast to meet the demand and is spending so much money on research that it is not making money. So, it failed to meet Street expectations and in this environment a company valued on sales per share that misses the estimates is just plain history.
So DexCom, which started the year at $35, rallied to $49 in that fabled first week in March when so many high-multiple momentum players collapsed, then cascaded down to $29 last week before bouncing to $31.
When you think of it, the company's successes spoiled the managers and some even had to sell because the position had gone up so much -- it was $11 exactly two years ago -- it was actually impacting their health-care weightings.
Now all of that has changed. It has become a down stock and it can't be valued on earnings per share. The catalysts of new products, the novelty of the iPad app, it just doesn't carry the weight that it once did.
But, and this is the interesting point, Terry Gregg sold Minimed for a valuation well in excess of what DexCom is valued at. Who is to say that if he is fed up -- which he didn't seem to me -- he couldn't do the same today? Who is to say that if the stock keeps falling, someone doesn't contact Gregg because this company's devices could be plugged into an existing sales force and hay would be made immediately?
I think there are a lot of me-too companies among the high fliers whose stocks have been and are getting pummeled. I think that there are many stocks that got way ahead of themselves and will not inspire a takeovers or be able to show a profit in time to salvage their stocks in this new chary environment.
But this company has proprietary technology with a proven CEO and tremendous momentum. It's the kind of company that someone else might want. Watch this stock. Put it on your screen. If the turn in momentum is ever going to be visible, it will come from a stock like this. DexCom's the bellwether for which we've all been looking.