The new year has brought a lot of volatility to the stock market. At one point last week, the S&P 500 index and Nasdaq Composite were down 9.2% and 14.7%, respectively. While those drops have been nearly halved in recent days, many fear the stock market is in a bubble. And they think that bubble is about to pop.
Investors seeking a solid companies with a proven track record of profitable growth might consider Garmin (GRMN -0.85%). Despite being known for losing market share to smartphones' GPS capabilities, the company has navigated its way to a strong position that should help it weather any storm the stock market brings.
Image source: Getty Images.
Market share isn't everything
Apple's iPhone was launched on June 29, 2007. Before that, Garmin's portable navigation devices were all the rage. In fact, marketing firm BrandIntel conducted a study showing it was the most loved brand.
In 2007, the automotive segment made up almost three quarters of the company's sales -- more than doubling from the previous year. Fast forward to the present and that same segment made up a scant 19% of sales in the quarter ending September 2021. And more than two-thirds of that was to manufacturers -- not consumers.
That disruption in the late 2000s forced the company into higher margin niches of GPS navigation. The following chart highlights both the impact smartphones had on the company's sales initially and how well Garmin adapted to the new landscape. Both revenue and gross margin are significantly higher than they were when the iPhone made its debut.
GRMN Revenue (TTM) data by YCharts
Growth by land, sea and air
Those niches serve use cases where smartphones and competing wearables can't compare. Every segment but auto was up significantly in the 2010s. And the the pandemic added to the gains. In fact, every unit but aviation is growing faster through the pandemic than it did before.
Image source: Getty Images. Chart by Author. *=thru 39 weeks of 2021.
Today, the company is best known for its fitness products. And fitness is increasingly popular. The number of people running marathons is up globally almost 50% since 2008. Most of them prefer Garmin devices.
Nikolay Todorov -- an analyst at Longbow Research -- reviewed data from more than 50,000 marathoners and found that Garmin's watches were worn by more than 70% of participants. The pandemic has created even more runners. Data from popular workout apps showed not only that. But the number of runs and mileage also jumped in 2020. Similarly, the outdoor segment is growing thanks in large part to a resurgence in hunting after decades of decline.
While aviation revenue is almost back to pre-pandemic levels, the marine segment is continuing to benefit from the shift to outdoor activities. It followed up stellar 54% growth in 2020 with 25% through the first nine months of 2021. All told, it's compounded at 31% since 2019.
The market may not believe the growth is sustainable. The stock is down almost 30% from its high last fall. But it may be getting lumped in with companies that don't have the cash flow and dividends Garmin offers shareholders. It produced more than $1 billion in free cash flow in the past 12 months and yields over 2%. Wall Street might also be making an assumption that is incorrect.
The power of habit
As the world slowly returns to normal, many of the so-called "pandemic" stocks have seen their stock prices crater. As the virus recedes, people will go back to behaving as they did before. Or so the thinking goes.
But not all pandemic stocks are created equal. Garmin has a strong brand in its narrow markets. New runners, boaters, hunters and hikers have developed habits that won't be so easily broken. And those habits are enhanced by the company's high margin products. That should give shareholders comfort no matter what the stock market does in the short term.
