lIn the stock market, past performance is no guarantee of future success. Still, it’s worth considering investing in companies that have a habit of beating the market. If that company can replicate the formula (or something similar) that has made it successful in the past, it may still have what it takes to achieve above-average returns.
Let’s take a look at two stocks with impressive track records in the stock market: DexCom (NASDAQ: DXCM) and Netflix (NASDAQ: NFLX)† For investors who may have missed either company, it’s not too late to act.
DexCom is a specialist in medical devices. The G6 device makes it a leader in the market for continuous glucose monitoring (CGM) systems. CGM technology allows diabetic patients to automatically monitor their blood glucose levels throughout the day. A major reason DexCom is so successful is the increased adoption of CGM technology. It is not difficult to understand why it is becoming increasingly popular among people with diabetes.
Blood glucose levels fluctuate throughout the day. Diabetes patients who use blood glucose meters (BGMs) can only read their blood glucose level at a certain point. Not to mention that BGMs rely on painful fingersticks. In contrast, CGMs continuously track this critical metric for diabetic patients and generally do not rely on fingersticks.
DexCom’s G6 takes 288 readings a day — or one every five minutes. Overall, CGM technology is associated with better health outcomes for diabetics.
DexCom has benefited from the rising popularity of CGMs with rising revenues. Last year, the company’s revenue grew 27% year over year to $2.45 billion. Adjusted net income per share for the year fell to $2.66, compared to $3.10 reported a year ago. DexCom recently coincided with the broader market in a sell-off that has been especially difficult for growth stocks. However, there are excellent reasons to be optimistic about the company’s future.
Firstly, it is getting ready to launch a brand new product, the G7, which will bring even better health outcomes to its target audience.
In fact, DexCom recently received a regulatory decision allowing it to market the G7 in Europe. It has already filed for regulatory review for the G7 in the US and the device could receive approval before the end of the year. Second, CGM still has a long way to go. Even in the US – a world leader in the adoption of the technology – it has relatively low penetration.
DexCom is well positioned to remain a leader in this booming market, which is why the company’s future still looks bright.
Netflix has had a stellar performance over the past decade, but the company is arguably going through its toughest period on record. Here are just some of the problems it faces.
First, there is competition. The number of streaming platforms has exploded in recent years. Consumers have more choice than ever, impacting the company’s ability to attract new subscribers.
Which brings us to our second point: Netflix’s net paid additions have been unimpressive (to say the least) over the past few quarters. In the first quarter, the company lost 200,000 subscribers, short of expectations of a total of 2.5 million new additions. That’s a big reason Netflix’s stock has recently been hammered.
Third, the company faces a password sharing issue. It estimates that some 100 million households log into its platform with borrowed passwords. That’s in addition to the 222 million paid subscribers it had at the end of the first quarter.
Despite these issues, there’s one crucial point that Netflix management keeps mentioning: streaming platforms still don’t control most of the TV viewing time in the US. In February, streaming only accounted for 28.6% of the total. So there is still plenty of room for streaming to catch up with broadcast and cable. The question is how Netflix can perform well in this environment. The company is looking at multiple options, including some that have had success in the past.
Netflix will continue to focus on producing quality content to keep consumers engaged and entertained. However, that will no longer be enough and the tech giant will have to look elsewhere. Management is considering multiple options, including the introduction of cheaper plans that display ads. This could tempt some households that share passwords to purchase their own subscriptions. The company is also engaged in gaming.
While the near term looks muddy for Netflix, the company’s branding, cash flow generation and history of smart capital allocation strategy should help change things. I don’t expect Netflix to deliver the kind of returns it did in the 2010s, but I think there’s still plenty of fuel in the company’s growth engine.
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Prosper Junior Bakiny has no position in any of the listed stocks. The Motley Fool owns and recommends Netflix. The Motley Fool recommends DexCom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.