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196.64
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52 weeks
52 weeks

Mkt Cap 465.31B

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DexCom (NASDAQ:DXCM) Is Experiencing Growth In Returns On Capital

What trends should we look for it we want to identify stocks that can multiply in value over the long term? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. So when we looked at DexCom (NASDAQ:DXCM) and its trend of ROCE, we really liked what we saw. Understanding Return On Capital Employed (ROCE) For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for DexCom: Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities) 0.057 = US$254m ÷ (US$5.2b - US$807m) (Based on the trailing twelve months to June 2022). Thus, DexCom has an ROCE of 5.7%. In absolute terms, that's a low return and it also under-performs the Medical Equipment industry average of 9.2%. Above you can see how the current ROCE for DexCom compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for DexCom. What Does the ROCE Trend For DexCom Tell Us? DexCom has recently broken into profitability so their prior investments seem to be paying off. Shareholders would no doubt be pleased with this because the business was loss-making five years ago but is is now generating 5.7% on its capital. Not only that, but the company is utilizing 538% more capital than before, but that's to be expected from a company trying to break into profitability. This can indicate that there's plenty of opportunities to invest capital internally and at ever higher rates, both common traits of a multi-bagger. The Bottom Line On DexCom's ROCE Overall, DexCom gets a big tick from us thanks in most part to the fact that it is now profitable and is reinvesting in its business. And with the stock having performed exceptionally well over the last five years, these patterns are being accounted for by investors. In light of that, we think it's worth looking further into this stock because if DexCom can keep these trends up, it could have a bright future ahead. If you want to continue researching DexCom, you might be interested to know about the 1 warning sign that our analysis has discovered. While DexCom isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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