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Is Garmin Stock a Buy?

By Howard Smith - Jan 20, 2021 at 7:56AM

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The business is firing on all cylinders, and there's a cushion in case of a market crash.

The pandemic reinforced some new consumer trends and accelerated innovation in many businesses, and Garmin (GRMN -4.20%) is taking advantage. 

Its business rebounded quickly from a second-quarter sales slump amid the pandemic. That recovery came swiftly as interest in outdoor activities and exercise emerged as popular trends. Garmin also introduced products that took advantage of trends like the growing popularity of boating and recreational vehicles (RVs). 

clock with time to buy written on face

Image source: Getty Images.

A transformed product portfolio

Garmin has four growing product segments that made up almost 90% of net sales in the first nine months of 2020. That's up from about 70% four years ago. Fitness, outdoor, marine, and aviation have been growth catalysts since the automotive segment and its GPS personal navigation devices began to decline. The outperformance of the four nonautomotive segments have driven strong sales gains over the past several years. 

GRMN Revenue (TTM) Chart

GRMN Revenue (TTM) data by YCharts. TTM = trailing 12 moths.

Management expects revenue to hit $4 billion for the full year 2020. 

Protection in a market crash

The business also generates high margins. Its estimated gross profit margin for 2020 is 59%. For perspective, that compares to Apple's gross margins of 38%. That allows Garmin to continue to invest and grow the business as it brings in plenty of cash flow.

It generated $236 million in free cash flow in the third quarter, and that was after increasing research and development spending by 18%. That cash more than covers the $117 million it paid to shareholders in dividends. The current yield of about 2% gives investors a reliable income, which the company has raised steadily over the last three years. 

GRMN Dividend Yield Chart

GRMN Dividend Yield data by YCharts.

With approximately $2.7 billion in cash and marketable securities, and no debt, Garmin's balance sheet is enviable. That cash position translates to 12% of the company's total market capitalization, and should give investors comfort in times of market corrections or a recession. 

RV in the mountains with Garmin's GPS navigator device

Garmin's latest RV GPS Navigator. Image source: Garmin.

Continuing to innovate

In the third quarter alone, Garmin introduced an updated Forerunner wearable for multisport enthusiasts, and a new app for team training and performance monitoring with its devices. It also recently acquired Firstbeat Analytics "to offer products with unique health, wellness, and fitness features," management said in its quarterly conference call

The company expanded into indoor cycling in 2019 with its Tacx acquisition, and has been expanding its product line in the segment.

Recently, Garmin has been trying to capitalize on the popularity of boating and RVs during the pandemic. Its new RV GPS Navigator is the "latest and largest addition to its RV-specific GPS Navigator series," management says. 

A solid company at a reasonable price

Sometimes a business worth owning may not be worth buying at a given price. Garmin shares aren't as much of a value as they have been at times during 2020. But its current price-to-earnings ratio is still below 23, which is reasonable for a company that is growing sales at or near double digits. 

Considering the popularity of its products, the income investors receive from the dividend, and protection that a solid balance sheet provides, it's still a good time for investors to buy Garmin. 

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Garmin Ltd. Stock Quote
Garmin Ltd.
$97.12 (-4.20%) $-4.25

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