DexCom stock (NASDAQ: DXCM) is positioned as a better investment option compared to 3M stock (NYSE: MMM) due to its superior revenue growth, profitability, and financial position. Despite being from different sectors, both companies have a market capitalization of around $50-60 billion. Investors have assigned a higher valuation multiple of 13x for DexCom stock versus 1.7x for 3M. DexCom has seen a 45% increase in its stock price from $90 to $130, while 3M has seen a decline of 15% from $120 to around $100 over the same period. DexCom’s revenue growth, financial position, and profitability make it a more attractive pick for better returns in the next three years.
In the last three years, 3M stock has consistently underperformed the broader market, with returns of 5% in 2021, -29% in 2022, and -2% in 2023. On the other hand, DexCom stock saw returns of 45% in 2021, -16% in 2022, and 10% in 2023. DexCom’s revenue growth has averaged 23% annually over the last three years, significantly outperforming 3M’s 1% growth rate. DexCom has added 600,000 new users in 2023, bringing its total customer base to 2.3 million, contributing to its revenue growth. In comparison, 3M’s revenue rose from $32.2 billion in 2020 to $32.7 billion in 2023, with a decline in sales post-pandemic due to various factors affecting its businesses.
DexCom’s profitability and financial position are stronger than 3M’s. DexCom’s operating margin expanded slightly from 15.5% to 16.5% from 2020 to 2023, while 3M’s reported operating margin decreased to -27.6% in 2023 due to litigation charges. DexCom’s debt as a percentage of equity is 5%, much lower than 3M’s 30%, indicating a better debt position and more cash cushion for DexCom. Looking at the stocks’ valuation multiples, 3M currently trades at 1.7x trailing revenues compared to its historical average of 2.2x, while DexCom trades at 13x revenues compared to its historical average of 16.4x. Despite similar growth potential if valuation multiples were to return to their historical averages, DexCom is still seen as a more promising investment option.
While 3M has taken initiatives to improve profitability, such as divesting businesses and resolving major litigations, it faces near-term risks due to macroeconomic factors, falling sales, and weak consumer demand. On the other hand, DexCom continues to see growth potential with the rising demand for its continuous glucose monitoring devices and disposable sensors. The company’s focus on new customer additions and regulatory approvals for its products contribute to its revenue growth. DexCom’s press release indicates the importance of CGM devices in complementing new obesity drugs and monitoring their effectiveness, suggesting continued growth for the company and its products. Overall, DexCom’s growth potential and financial strength position it as a better investment choice compared to 3M.
