At first glance, Fitbit (NYSE:FIT) and Garmin (NASDAQ:GRMN) don't seem like rivals. Fitbit is one of the world's top fitness tracker makers, and Garmin is generally known for making GPS devices. But over the past three years, Garmin became one of Fitbit's fiercest rivals with its Vivo fitness trackers and higher-end sports performance wearables.

IDC reports that between the first quarters of 2016 and 2017, Fitbit's global share of the wearables market fell from 23% to 12%, causing it to fall to third place behind Xiaomi and Apple. Garmin claimed about 5% of the market during the quarter, making it the fifth biggest player in the market.

Three of Fitbit's Alta wristbands arranged above a table.

Fitbit's Alta. Source: Fitbit.

Over the past 12 months, Fitbit shares cratered more than 80% on concerns about its slowing sales growth and crumbling margins. During that same period, Garmin rallied 15% as investors applauded its growth in wearables and non-automotive GPS devices. But does that mean that Garmin is still a better buy than Fitbit? Let's examine their businesses, growth trajectories, and valuations to find out.

Understanding the differences between Fitbit and Garmin

Fitbit generates nearly all its revenue from sales of fitness trackers. Newer devices -- which include the Fitbit Charge 2, Fitbit Alta HR, and Fitbit Flex 2 -- generated 81% of its revenues last quarter. Fitbit has struggled with decelerating sales growth over the past few years, due to the ongoing commoditization of the wearables market.

Fitbit's revenue rose 149% in 2015, grew 17% in 2016, but is expected to decline 25% this year. To offset that slowdown, Fitbit acquired the assets of smartwatch maker Pebble (which serves as the foundation of its new app store ecosystem) and the high-end smartwatch maker Vector. Fitbit believes that pulling those assets together in a full-featured smartwatch to challenge Apple Watch could turn the tide, but the upcoming device has been plagued by delays and a rumored lack of developer interest.

Three Vivosmart 3 wristbands standing next to each other.

The Vivosmart 3. Source: Garmin.

Garmin has a much more diversified business. Last quarter, 26% of its revenue came from the aging automotive GPS business, which is being disrupted by smartphone-based solutions like Google Maps and Android Auto. Aviation and marine GPS devices generated 28%, 24% came from outdoor devices (which include outdoor GPS and sports performance wearables), and 22% came from regular fitness trackers.

However, only Garmin's Outdoor and Aviation units posted year-over-year sales growth last quarter. The other units all posted declines. Its 15% decline in Fitness revenues was particularly disappointing, and indicated that the same headwinds slamming Fitbit were affecting sales of Garmin's lower-end Vivo devices. Nonetheless, Garmin's growth remains less volatile than Fitbit's -- its revenue dipped 2% in 2015, rose 7% in 2016 on the strength of its wearables, and is expected to improve 1% this year.

Margins, earnings, and valuations

To get consumers interested again, Fitbit is boosting its research and development and marketing expenses -- which caused its operating margins to drop through the floor. Garmin, on the other hand, maintained steady operating margins of about 20% as it diversified away from its slower-growth auto GPS business toward new markets like wearables and cameras.

FIT Operating Margin (TTM) Chart

Source: YCharts

This disparity caused some big differences in both companies' earnings growth. Fitbit posted a non-GAAP net loss of $0.12 per share last year, and that loss is expected to widen to $0.31 this year. Garmin's pro forma (adjusted) earnings rose 14% to $2.83 per share in 2016, but that figure is expected to dip 2% this year on weaker wearable and auto GPS sales. Nonetheless, Garmin remains the safer play based on its more stable revenue and earnings growth.

Fitbit looks cheap at 0.7 times sales, but it's cheap for a reason -- investors don't see its sales or earnings growth improving anytime soon. Meamwhile, Garmin trades at 15 times earnings and three times sales, which compares favorably to the industry average P/E of 29 and P/S of three for scientific and technical instrument makers.

Lastly, Garmin pays a hefty forward dividend yield of 4%, which is comfortably supported by a payout ratio of 57%. Fitbit has never paid a dividend, and won't likely do so due to its profitability issues.

An easy choice

Both Fitbit and Garmin have distinct flaws, but the latter is clearly a better investment than the former. Garmin is a slow-growth stock, but its well-diversified business model, low valuations, and high dividend all make it a safer investment than Fitbit, which is struggling to stay relevant against aggressive rivals like Xiaomi and Apple.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.