Garmin: Not A One Hit Wonder, But Fairly Valued
Christopher is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Garmin (NASDAQ: GRMN) has definitely turned out not to be the one hit wonder a lot of people thought it would be. The company has fallen off its highs of about $120 a share in 2007 but has continued to be profitable. The metrics suggest that the stock is more or less fairly valued at its current levels. A financially stronger consumer base will increase the prospects for the company as they would have more discretionary income to spend on the company’s products in the coming months.
Garmin's trailing 5 year valuation metrics suggest that the stock is undervalued as all three of the metrics are in the lower end of their respective 5 year ranges. Garmin's current P/B ratio is 2.69 and it has traded in a range of 1.7 to 13 over the past 5 years. Garmin's current P/S ratio is 3.07 and it has traded in a range of 1.1 to 10.1 over the past 5 years. Garmin's current P/E ratio is 17.3 and it has traded in a range of 5.5 to 35.9 over the past 5 years. Note, this metric may not be very valuable as the hype behind the company’s products has fallen way lower since 2007.
The forward valuation has more merit here. Garmin is currently trading at about $43 a share with analysts expecting EPS of $2.4 next year, an earnings increase of 0% y/y, for a forward P/E ratio of 18. Taking a look at the company's publically traded competitors will give us a better idea of the stock's relative valuation. Roper Industries (NYSE: ROP) is currently trading at about $92 a share with analysts expecting EPS of $4.73 next year, an earnings increase of 9% y/y, for a forward P/E ratio of 19.5, which certainly shows better dividend growth prospects than Garmin. Next, we see that Trimble Navigation (NASDAQ: TRMB) is currently trading at about $48 a share with analysts expecting EPS of $2.4 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 19.9, again with better growth prospects than Garmin. Comparatively, Metter-Toledo (NYSE: MTD) is currently trading at about $179 a share with analysts expecting EPS of $9.28 next year, an earnings increase of 14% y/y, for a forward P/E ratio of 19.3. However, the mean forward P/E of Garmin's competitors at 19.6 suggests that Garmin is fairly valued. While these companies do boast strong dividend growth prospects, they do not have the iconic brand image of Garmin. The company maintains its position as the leader in personal handheld GPS devices.
Analysts differ quite significantly from their usual bullish outlook. The consensus price target for the analysts who follow Garmin is $38. That is downside of -13% from today's stock price of $43.24 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
On a cash flow basis, it is also a short. According to the cash flow metric provided by Dividend Kings, Garmin is worth $35 a share versus its current stock price of $43.24 a share. This suggests that the stock is overvalued.
The top two funds that own Garmin are Fidelity Series Large Cap Value, which owns 5.9 million shares or 3.02% of the shares outstanding, and American Funds AMCAP A, which owns 5.4 million shares or 2.78% of the shares outstanding. The top two institutions that own Garmin are Capital Research Global Investors, which owns 16.2 million shares or 8.33% of the shares outstanding, and Fidelity Management and Research Company, which owns 9.6 million shares or 4.95% of the shares outstanding.
Looking at the price action, Garmin is up 35.3% over the past year, outperforming the S&P 500, which is up 3.7%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $40.28 and above its 200 day moving average, which sits at $35.18.
Despite a recent run up in share price, I believe Garmin is still at fair value. The company will likely see new highs in the coming quarters in the midst of a better than expected jobs outlook due to recent jobs growth. This would mean better sales due to consumers having higher discretionary income. Garmin is certainly not a one hit wonder.
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