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Diabetes sector valuations out of sync; we think they should be in “Tandem.”

There are over 1.8 million type one diabetics in the US and 4 million internationally. Of those 36% (U.S.) and 12% (International) are using insulin pumps versus multiple daily insulin injections. We think the penetration rate will continue to grow to over 50% in the next several years as innovation from Insulet (PODD) and Tandem Diabetes Care (TNDM) continues. In addition, some of the 3.8 million type 2 diabetics in the world can also benefit from continuous glucose monitors (CGMs), manufactured by Dexcom (DXCM) and Abbott (ABT), and insulin pumps.

While all the companies mentioned benefits from this trend, there is a large disparity between the valuations. As can be seen by the chart below, TNDM at 2.9 and 2.5 times 2023 and 2024 enterprise value to revenues trades at a significant discount to the average of 8.9x and 7.7x for the other four companies. Some of the discount may be justified as DXCM and PODD do have higher gross margins and have new product cycles in the near term – “but 10 multiple points on revenue?” Tandem even trades below much slower growers MDT and ABT; “come on.” Minimed, which is losing share to TNDM and PODD, was acquired by Medtronic in 2001 for approximately 8.2 times revenues.

Tandem currently has an installed base of over 400,000 users and believes they can reach 1 million users by 2027. They have multiple new products in development, including the smaller MOBI device, which is expected to be introduced this year. In addition, they are developing a disposable patch pump to compete with PODD. Tandems revenue guidance does not include any sales from new products.

Diabetes sector valuations out of sync; we think they should be in Tandem
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© 2023 by Grow Funds LLC. Registered Investment Advisor. GROW Funds LLC is a California registered investment advisory firm. Registration does not imply any level of skill or training. Neither the information within this article nor any opinion expressed shall constitute an offer to sell or a solicitation or an offer to buy any securities. Investors should have long-term financial objectives. Past performance is no guarantee of future returns. GROW Funds LLC currently owns TNDM shares in its portfolios.



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