The markets may have plunged yesterday on concerns that the Federal Reserve may soon pare back its $85 billion monthly bond-buying program, but you could hardly tell with new 52-week highs still outpacing new 52-week lows by a margin of three to two. For skeptics like me, that’s an opportunity to see whether companies have earned their current valuations.
Keep in mind that some companies deserve their current valuations. Allegiant Travel Company (NASDAQ:ALGT), for example, is creating cash flow hand over fist by luring in passengers with low ticket fees and then utilizing hefty optional fees such as on checked baggage, carry-on baggage, and food, which are almost pure margin plays, to add to its bottom line. The beauty of Allegiant’s model is that many of these ancillary fees are purchased online or at electronic points of sale, meaning few employee costs.
Still, other companies might deserve a kick in the pants. Here’s a look at three companies that could be worth selling.
Where’s the beef, DexCom, Inc. (NASDAQ:DXCM)?
Sometimes a company’s products make a lot of sense on paper, but the practical application doesn’t go nearly as smoothly. This is how I’d describe medical monitoring device maker DexCom, Inc. (NASDAQ:DXCM), which has an array of glucose monitoring devices to help diabetes patients better manage their disease. Make no mistake about it; the number of diabetes diagnoses in this country is rising in accord with our obesity rate. Therefore, a company like DexCom, which makes the DexCom G4 System monitor, could be a big hit, and certainly has a wide enough audience to cater to.
The key word here, though, is “could,” as the practical application of DexCom’s monitoring devices hasn’t resulted in profits for DexCom, Inc. (NASDAQ:DXCM). In the first quarter, DexCom, Inc. (NASDAQ:DXCM) did report robust product sale growth of 49%, but only squeaked by Wall Street’s expectations with a loss of $0.16 per share. It does have solid partnerships in place, but it could be two or more years before it even turns a quarterly profit with investment in R&D taking up such a large slice of its available cash.
Another key point to note here is that competition among glucose monitoring devices is fierce. DexCom, Inc. (NASDAQ:DXCM) is likely going to have to spend through the nose in advertising just to differentiate its product from the rest of the field, further delaying its profitability.
Until DexCom, Inc. (NASDAQ:DXCM) can pull itself out of the red, I’d suggest monitoring a different company in the glucose monitoring industry.
Anything but smoothie
Fruit smoothie and juice maker Jamba, Inc. (NASDAQ:JMBA) recently completed a 1-for-5 reverse split to make its share price more attractive to more risk-averse investors and Wall Street institutions. However, no amount of cosmetic changes is enough to hide the lack of progress at Jamba over the past six years.