Is Garmin Destined for Greatness?

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Garmin (NASDAQ: GRMN  ) fit the bill? Let's take a look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Garmin's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's take a look at Garmin's key statistics:

GRMN Total Return Price Chart

GRMN Total Return Price data by YCharts

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(36.8%) vs. (20.3%)


Improving EPS



Stock growth (+ 15%) < EPS growth

55.3% vs. (18.2%)


Source: YCharts. * Period begins at end of Q2 2010.

GRMN Return on Equity Chart

GRMN Return on Equity data by YCharts

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity

No debt


Dividend growth > 25%



Free cash flow payout ratio < 50%



Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we're going
Garmin can't seem to navigate itself out of a deep hole today -- the GPS-device manufacturer earns only one out of nine possible passing grades. One of the falling grades only happened because net income growth has surpassed the growth of free cash flow during our tracked period, but Garmin's free cash flow numbers are actually higher than its net income. Will Garmin's fundamental weaknesses catch up to it in the end? Let's dig a little deeper to find out.

In its second-quarter earnings, Garmin beat analyst estimates on both top and bottom lines. However, low expectations aren't much to write home about, and Garmin is still below levels set in 2010. Millions of people have been using smartphones and tablets as GPS devices, replacing Garmin's legacy products, which has posed a substantial threat to its long-term business. Even so, Goldman Sachs analysts have recently upgraded Garmin's stock from sell to neutral, thanks to the release of a new line of action camera products known as VIRB and VIRB Elite. This is a highly competitive market, and Garmin has none of the brand loyalty held by fans of GoPro, which has been racing ahead with new (if somewhat flawed) action cameras in recent years. I'd be surprised if the company gains enough traction to knock off industry leaders.

Fool contributor Chris Neiger notes that Garmin has launched a portable heads-up display unit (HUD) for car windshields. This new GPS device will help Garmin turn smartphones and tablets into allies, as it can be paired with a smartphone via Bluetooth wireless connections. This is an intriguing product, but, as Neiger also points out, Mazda is implementing HUD display tech directly into its cars. Garmin may not have much of a window for adoption before these systems catch on with automakers.

Putting the pieces together
Today, Garmin has few of the qualities that make up a great stock; but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Garmin has an uphill battle in a smartphone world, but there are plenty of alternatives that provide better exposure to this growing market. Truth be told, one company sits at the crossroads of smartphone technology as we know it. It's not your typical household name, either. In fact, you've probably never even heard of it! But it stands to reap massive profits NO MATTER WHO ultimately wins the smartphone war. To find out what it is, click here to access the "One Stock You Must Buy Before the iPhone-Android War Escalates Any Further..."

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2618108, ~/Articles/ArticleHandler.aspx, 9/29/2016 4:54:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,143.45 -195.79 -1.07%
S&P 500 2,151.13 -20.24 -0.93%
NASD 5,269.15 -49.39 -0.93%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/29/2016 4:00 PM
GRMN $48.15 Down -0.83 -1.69%
Garmin CAPS Rating: **