If you ask investors to name a maker of popular tech gadgets that is flush with cash and has a stock performance that's almost tripled the S&P 500 index over the last several years, many would likely answer Apple (AAPL 0.02%). But another accurate answer that would probably surprise many people is Garmin (GRMN 0.56%)

The maker of GPS-enabled devices used for sports and outdoor recreation is a cash flow machine, has no debt, and has seen an explosion in sales that looks to continue for the foreseeable future. So why aren't more investors talking about Garmin? If they looked further into it, they just might start. 

Garmin images highlighting devices for divers, pilots, boaters, and bikers.

Garmin's products are used for a wide range of outdoor activities. Image source: Garmin.

Creating an ecosystem

Once known mainly for automotive GPS systems, Garmin spent the last decade focusing on growing its other business segments, namely fitness, outdoor, aviation, and marine. And customers not only love the products, it also works to make it easier to integrate its devices to help create an ecosystem.

The company now offers solar charging technology on some of its smartwatches. That's particularly useful when integrating with devices from its other segments. You can leave the watch on to view data while it charges and seamlessly integrates with separate Garmin devices used for other activities, including its biking, dog tracking, and action camera offerings. 

Other examples include how hunters and dog handlers can use the company's Tread powersport off-road navigator from its automotive segment to help track sporting dogs that have Garmin's GPS dog systems from its outdoor segment. In-vehicle dog tracking provides ease of use that helps build customer loyalty. Or a golfer using a GPS golf watch can pair with a club tracking sensor to send data, including yardage and swing dynamics, directly to their watch.

Measuring up to an icon

Building an ecosystem integrating products is something Apple mastered long ago. With its $32.7 billion market cap, it may seem odd to compare Garmin to Apple and its $2.4 trillion valuation. But the similarities that do exist are worth noting.

It starts with a fortress-like balance sheet. The company has no debt, and $3.2 billion in cash and marketable securities as of June 26. That represents about 10% of its market cap. Apple, well known as a cash-generating behemoth, had about $194 billion as of the same date, representing about 8% of its valuation at recent prices. Apple chooses to carry low-cost debt, but Garmin generates enough cash flow to support all of its needs without debt. Those include investments in research and development, potential acquisitions, and reliable dividend payments. 

Other similarities include total returns including dividends over the last three years (which far outpace that of the S&P 500), and the rate of increasing dividend payments.

GRMN Total Return Level Chart

GRMN total return level data by YCharts.

Garmin also compares favorably to Apple with a gross profit margin of 59.2% over the first six months of 2021, while Apple reported 41.7% gross margin in the same time period.

Growing popularity

One of the more attractive aspects of Garmin's business is its diversity of products. In the full year 2020, for example, revenue in the aviation segment dropped 15% year over year, mainly due to timing related to the Federal Aviation Administration (FAA) requirement to have planes upgrade to ADS-B navigation technology by Jan. 1, 2020. Yet with strong marine, outdoor, and fitness sales, it still increased overall revenue 11% in the pandemic-impacted year. 

Management sees all five of its segments growing in 2021. After updating guidance in the second-quarter report, management said it sees sales growth of 16.9% compared to 2020. Boating and camping proved popular during the pandemic, and the company doesn't see that trend waning anytime soon. Boat manufacturers continue to have record backlogs, and Garmin just increased its expectations for its marine segment from the original assumption of 15% sales growth for the year to 27%.

Garmin also believes its automotive segment will grow 2021 sales 15% versus 2020. That would be the first full year of positive growth for the automotive segment in more than five years. 

Trends and valuation

The company seems primed to not only replicate the success it experienced over the past several years, but to build on it. Trends toward outdoor recreation were already increasing, and it seems the pandemic might have brought the popularity to another level. Garmin's success has led to its stock trading at somewhat of a premium to the overall market in the past. 

That continues today, with Garmin trading at a price-to-earnings ratio of about 30 based on 2021 expectations. But as it showed after its second quarter, management tends to be conservative and raises guidance only when it has evidence it can hit those marks. And using enterprise value, which takes net cash into account, the P/E becomes 27 at recent prices. It's likely the company continues to grow revenue in the double digits next year, too. That makes today's share price reasonable looking forward. 

Garmin isn't going to be the next Apple, but that doesn't mean investors can't see the same success over the next few years as the company has provided over the past several. And with plenty of cash and cash flow to support, and grow, a dividend that currently yields about 1.5%, Garmin is a company and a stock that more investors should be talking about.