Garmin Beats, Stock Navigating to a Huge Day

Personal navigation device maker Garmin Ltd. (NASDAQ: GRMN) has been one of the worst stocks for long investors to hold over the last year and a half. The stock traded for about $90 per share in January of 2008, but had steadily declined at a pace much worse than even the poor performance of the S&P 500 or the Nasdaq. The difficulties were many over this period, as the rise of smart phones with GPS mapping features already installed have became ever more popular. Garmin has plans to get a foothold in that space with there Nuviphone, but countless delays have made a significant part of that market less likely. Furthermore, the company relied on sales from its aviation and marine units, and in terms of leisure boating or aviation consumers have cut down on spending in these areas.

This stock was heavily shorted as it was coming from an inflated price level and its products seemed to be losing relevance and sales day by day. The stock eventually reached a low of just over $14 in February, and at that point the company had nearly $5 in cash on hand on its balance sheet to go along with zero long term debt. So, realistically GRMN shares were trading for under $10 when you take away cash, and still estimated to earn about $2 in profit for 2008. At that point the stock was undeniably very cheap, and we had a Greatly Undervalued rating on these shares. The stock has more than doubled since then with the improving economy; in addition, Garmin stock got a major boost today from better than anticipated earnings results.

Garmin is trading 17% higher at midday, while the broad market indices are down about 1%. The results from the second quarter showed that sales, while still slacking, have appeared to have bottomed. Net income has fallen 37% to $161.9 million or 81 cents per share, but this is still far better than the 67% decline that the street had expected calling for earnings of 51 cents per share. Excluding one-time items from currency effects and the sale of TeleAtlas shares, Garmin would have done even better at 83 cents per share. Likewise, sales also beat expectations, although that still represents a decline of 27%. Sales fell in North America and Europe, by far the company’s two largest markets, but Asian markets provided a bright spot growing sales at 21%.

We are continuing to rate Garmin shares as Undervalued because fundamentals of the company suggest that it is still cheap. The balance sheet is pristine and they have increased cash and equivalents to a whopping $1.5 billion and still have no long term debt obligations. This will give them more flexibility to be more aggressive going forward, or could make them a more attractive takeover target. When the company reported results for the first quarter they claimed that they were seeing the bottom in sales, and with a 53% improvement in sequential sales numbers, they appear to have been correct.

“Garmin shares are soaring; GRMN is the ticker. That stock is up about 20%. So if you listened to John yesterday, it’s had a nice run. If you bought Garmin two years ago, you’re hurting. It was $123 stock 18 months ago and now $31 stock. It was a $15 stock six months ago so like in life and dating and eating of old chicken, timing is everything.” — Fox Business Network 8/5/2009

Garmin Stock Navigating to a Huge Day

About Ockham Research 645 Articles

Ockham Research is an independent equity research provider based in Atlanta, Georgia. Security analysis at Ockham Research is based upon the principle known as Ockham's Razor, named for the 14th- century Franciscan friar, William of Ockham. The principle states that a useful theory should utilize as few elements as possible, because efficiency is valuable. In this spirit, our goal is to make the investing environment as simple and understandable as possible, yet no simpler than is necessary.

We utilize this straightforward approach to value over 5500 securities, with key emphasis given to the study of individual securities' price-to-sales, price-to-cash earnings and other historical valuation ranges. Our long term value investing methodology is powered by the teachings of Ben Graham and it has proven to be very adept at identifying stock prices that are out of line with fundamental factors.

Ockham Research provides its research in a variety of forms and products including our company specific reports, portfolio analytics tools, newsletters, and blog posts. We also offer a white labeling research solution that can give any financial services firm their own research presence without the time and cost associated with building such a robust coverage universe of their own.

Be the first to comment

Leave a Reply

Your email address will not be published.