According to a Form 4 filed with the SEC, Jay Skyler of DexCom, Inc. (NASDAQ:DXCM) directly purchased 70,000 shares of stock on March 11th at an average price of $15.50 per share. Between his direct holdings and his trust, he now owns over 250,000 shares of the stock (his family owns another 20,000 shares), so this was a significant percentage increase in his holdings. Studies show that stocks bought by insiders tend to outperform the market (read our analysis of studies on insider trading). We think that this is because an insider has strong incentives to diversify their wealth and so will avoid buying more shares unless they are particularly confident in the company. Our database of insider trading filings shows that Skyler last bought shares in November 2011 when the stock was trading just above $7 per share.
DexCom, Inc. currently trades at about $16.50 after rising in price following the insider purchase. The company is a $1.1 billion market cap designer of glucose monitoring systems, which are used by diabetics and by health care professionals. Revenue growth has been very high at the company: DexCom reported a 41% increase in product sales last year compared to 2011, and this followed a 63% growth rate on the top line in 2011 versus 2010. However, expenses have also risen strongly and- since they started off high in 201- DexCom has turned in operating losses each of the last three years, with 2012’s loss being higher than in the previous two years. Even if we add back R&D expenses operating profits are negative.
Cash flow from operations has also been negative; DexCom, Inc. primarily financed its operations last year through sales of marketable securities. Currently cash, cash equivalents, and marketable securities total $49 million, which would be enough to cover another year of burning through cash at the same rate as 2012 though not by much. The company is not expected to be profitable this year or in 2014.
We track 13F filings from hedge funds and other notable investors in our database, and particularly pay attention to what they think of small cap stocks as these less-followed companies can be good sources of alpha (the most popular small cap stocks among hedge funds earn an excess return of 18 percentage points per year). DexCom is not very popular here. The largest position in our database belonged to Sectoral Asset Management, which cut its stake by 36% during the fourth quarter of 2012 and owned 1.6 million shares at the end of December (see Sectoral’s stock picks). Scott Burney’s Bluefin Investment Management was the only other filer we track to report a position worth over $8 million, and it too had been selling shares (find Bluefin’s favorite stocks).