Don’t give up on this healthcare stock too soon.
About a half-billion adults in the world have diabetes. This chronic health condition causes severe hardships to patients and contributes substantially to healthcare costs.
It’s no wonder that many companies continue developing innovative products to help diabetes patients manage the disease. One of them is Tandem Diabetes Care (TNDM 1.48%), a medical device specialist that markets insulin pumps.
Though Tandem Diabetes Care has not performed well on the stock market over the past year, there is hope for the company. Let’s find out why Tandem could still be an excellent investment for patient investors.
Tandem’s recent financial results
Tandem Diabetes Care’s recent financial results have been subpar. In 2023, the company’s non-GAAP (generally accepted accounting principles) sales came in at $772.8 million, down almost 4% year over year. Tandem did not sell as many pumps in 2023 as it did in 2022; pump shipments declined nearly 19% year over year to 104,000. Tandem ended the year with an installed base of 452,000, 7% higher than the previous fiscal year.
One factor behind Tandem’s less-than-impressive results has been economic conditions, including inflation. Patients strapped for cash are less likely to spend the money on a new insulin pump, especially if they already have one. Multiple daily injections are more cost-effective than pumps, so patients are less likely to switch to the latter when the economy isn’t doing too well.
Tandem’s dropping top line isn’t doing better than the bottom line. Last year, the company’s net loss per share came in at $3.43, much worse than the $1.47 reported in the previous fiscal year. When revenue and earnings are both moving in the wrong direction, that isn’t good for any company.
A new product could make a difference
However, there is more to Tandem Diabetes Care. Plenty of corporations, including prominent ones, don’t perform as well amid economic troubles. Tandem’s fortunes could change once the economy improves, pump shipments bounce back, and revenue starts moving in the right direction again. Tandem’s sales guidance for 2024 implies that its top line will grow by about 10% year over year — that’s much better than the performance it put up in 2023.
Last year, Tandem earned clearance for a brand-new insulin pump called Mobi, which management calls “the world’s smallest durable automated insulin delivery system.” Tandem’s Mobi is even smaller than its current crown jewel, the t:slim X2 insulin pump, whose size was also a selling point for some patients.
Mobi is designed with complete discretion in mind. It can be controlled through an app on a compatible smartphone. It can also be paired with DexCom‘s continuous glucose monitoring system, the G6, to automate the insulin delivery process.
The Mobi could be an important growth driver for Tandem Diabetes Care. According to one Wall Street analyst, the adoption of this new device is happening more quickly and broadly than anticipated. That said, the t:slim X2 should remain important for Tandem.
The company’s growing installed base means higher revenue from accessories and pump renewals — the t:slim X2 renewal cycle is about five years. Tandem Diabetes Care plans to reach an installed base of 1 million customers across its products. The company is seeking to improve its gross margins, too, aiming for 65% over the long run — it is currently in the neighborhood of 50%.
It is counting on the Mobi, which is about 15% to 20% cheaper to manufacture than the t:slim X2. Tandem should also continue to innovate. It is developing Sigi, a tubeless, patch-site, discrete insulin pump option. Therefore, Tandem’s platform looks exciting.
An intriguing long-term play
Though Tandem Diabetes Care has experienced some headwinds lately, it remains a highly innovative company that should make headway within the vast remaining diabetes market. Don’t be surprised if it hits its 1 million installed base goal within five years as the Mobi gains traction. And Tandem Diabetes won’t stop there. The company is working on several other products to help diabetes patients.
In short, the stock still has exciting prospects despite lagging the market in the past year. Long-term investors should strongly consider adding shares of Tandem Diabetes Care to their portfolios.
