DexCom is a textbook example for Jim Cramer on why it never pays to get too negative about a stock.
Shares of DexCom soared 25 percent on Friday after the Centers for Medicare and Medicaid Services announced it would classify DexCom's latest device, called the G5, as durable medical equipment. Meaning, the government is willing to pay for it.
"If you have conviction about a company, and the story has plenty of catalysts, and the management is terrific and non-promotional … then good things can happen, often much sooner than you would expect," the "Mad Money" host said.
DexCom makes continuous glucose monitoring systems to help people with diabetes check blood sugar levels through a sensor, rather than pricking their finger with a needle.
Cramer was baffled why no one on Wall Street saw the gigantic stock move coming, and why they were so negative about the stock to begin with.
DexCom's stock was left for dead in recent months after a multi-year run, as the stock plunged to $67 on Thursday from $96 in September.
Cramer boiled the stock's fall down to competition, as DexCom's main competitor Medtronic, received FDA approval for its own closed loop insulin delivery system. DexCom sent the stock down even further when management uncharacteristically issued weak guidance.
The announcement that DexCom's G5 system being covered by Medicare and Medicaid didn't come out of left field for Cramer, though, it was the timing.
Even the most bullish investors didn't expect the government to make a decision on the Medicare and Medicaid reimbursement for at least of year. That means there is now significantly more money that the company can work with 12 months sooner than anticipated.
"Every analyst who covers DexCom immediately needs to raise their sales and earnings estimates," Cramer said.
That was exactly what many of them did on Friday, and the stock skyrocketed. Meanwhile, Cramer recommended waiting for a pullback before buying DexCom.