It seems as if everybody hates Garmin (NASDAQ:GRMN) these days. And now that Apple (NASDAQ:AAPL) has discovered GPS, Nokia (NYSE:NOK) owns a piece of it, and nav-enabled car sales are in the toilet, perhaps they should ... or perhaps they shouldn't. The most famous name in GPS gets its next chance to prove its worth Wednesday morning, when it reports 2008 third-quarter earnings.

What analysts say:

  • Buy, sell, or waffle? Garmin's ratings clock in at three buys, 15 holds, and three sells.
  • Revenue. On average, analysts are looking for 19% sales growth, to $865.6 million.
  • Earnings. But profits are predicted to shed a nickel to end at $0.84 per share.

What management says:
Garmin's "Great Distributor Roll-Up" continues apace. Since the end of the last quarter, the company announced that it has closed on the purchase of its Austrian and Portuguese distributors, and signed a letter of intent to acquire its distributor in Sweden.

What management does:
Unfortunately, the company's profit margins are shrinking almost as fast as the ranks of independent Garmin distributors. And while the 27% operating margin still looks pretty plump, a Fool can wonder whether Garmin's new foray into the cell-phone market will help reverse the decline ... or suck Garmin further down toward the profit margins of current phone makers like Apple and Nokia. (On the other hand, Research In Motion (NASDAQ:RIMM) earns even fatter margins than Garmin, so perhaps there's still hope.)

Margins

3/07

6/07

9/07

12/07

3/08

6/08

Gross

49.3%

49.5%

48.9%

46.0%

46.1%

45.1%

Operating

30.5%

31.0%

30.8%

28.5%

28.1%

26.7%

Net

29.1%

29.2%

28.3%

26.9%

25.7%

25.7%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The greatest danger to Garmin's margins (there's that anagram again), though, is not its entry into the cell-phone market. With all of the rivals named above -- and presumably Motorola (NYSE:MOT) and Google (NASDAQ:GOOG) as well -- angling to "converge" all things electronic by putting GPS functionality in phones, Garmin has no choice but to put a phone in its GPS.

No, the great danger here is the one I've been pounding the table about for months: Inventories. Against 28% year-to-date sales growth, Garmin's inventories zoomed up 125% last quarter in comparison to June 2007. That towering pile of unsold inventory threatens to come crashing down at any moment, taking profit margins with it. So yes, by all indications, Garmin's stock looks ultra-cheap. And yet, until Garmin addresses its inventories issue, my advice has to be: Before buying into Garmin, buy a hard hat.