-$3.90
$7.50
bear -$3.90
base -$1.10
bull $7.50
margin of safety $3.00
market price* $16.24
Business condition attached to the margin of safety
Two consecutive full years of positive owner earnings after stock compensation (cash from operations less stock compensation and maintenance capital spending).
Tandem Diabetes Care makes insulin pumps (t:slim X2, Tandem Mobi) and sells the recurring cartridges and infusion sets they use. 2025 sales were $1.01 billion (+8%), gross margin 54%, and more than 126,000 pumps shipped. Supplies and other sales are growing faster than pumps (US $353M, up 12.5%; international $198M, up 22%), and each pump sold creates years of supply purchases. How we measure earnings. We take cash from operations, strip out working-capital swings, and subtract stock-based compensation (about $92M in 2025, a real cost to owners) and the part of capital spending needed just to maintain the business. On that basis Tandem has not earned money for owners since 2021: per share, +$0.86 in 2021, then -$0.73, -$1.77, -$0.57 and -$1.12 in 2022 to 2025. Our reference level is the middle of 2022-2025, about -$0.93 a share, a window that starts after the 2021 peak and covers the current cost structure. This measure also leaves out cash paid for acquired patents and technology, recorded as investing: $46M in 2024 and $79M in 2025 (the May 2025 Roche settlement and cross-license, with $36M payable over four years). That is a further real drain. Base case: value about -$1.10 a share. The last full year got worse (-$0.57 to -$1.12), so we start 2026 lower than a simple rebound. The reason we assume better than that: first-half 2026 results (10-Q for the period ended June 30, 2026) show a net loss of $41.6M versus $183.0M a year earlier (which included the $75M IPR&D charge), stock compensation down from $51M to $31M, and sales up 6% to $502M. On our measure the first half of 2026 was about -$54M versus about -$87M in 2025, and second halves have been seasonally stronger. We assume -$0.60 for 2026, -$0.40 in 2027, -$0.20 in 2028 and break-even after that. We credit no further improvement, because we cannot point to evidence for it. Growth in supplies from pumps already in the field is real but is offset by higher selling costs (SG&A rose 14% in 2025, faster than sales), and the new pharmacy model, paid only for supplies rather than upfront for the pump, may lower pump revenue during the transition. A break-even business is worth zero, so the value is the small remaining cash burn. Bear case: about -$3.90. Losses stay at the 2025 level of about -$1.12 a share for as long as the balance sheet can fund them, roughly four years ($292.7M of cash and short-term investments at year-end 2025, against $307M of 2029 convertible notes), with continued patent and technology payments on top. After that nothing we can evidence continues, so the case ends. In this case the company owes more than the business is worth, by roughly $270M in total. Bull case: about $7.50. Tandem's own levers execute: sales keep rising near the 6-8% pace of recent years at a 54% gross margin, stock compensation stays near the first-half 2026 rate (about $63M annualized), and the loss disappears by 2027. Owner earnings reach about $1.00 a share by 2030 and hold through 2035, then fade 10% a year as pump patents and competitors erode the position. What would make this wrong: the cash funding the losses is not counted separately, since it is what pays for them, and it is worth about $4 a share. A faster return to profit than the first half suggests would make these values too low. Continued spending growth, pump price pressure in the pharmacy shift, or further one-off patent payments would make them too high. Some working-capital lines are not separately tagged, so our working-capital adjustment is approximate. The margin-of-safety price of about $3 a share applies only after two consecutive years of positive owner earnings after stock compensation.