Garmin's (GRMN 0.60%) stock price has plummeted along with many of its tech peers since late 2021. But shareholders are hoping for a rebound once the navigation device giant reports its holiday season results in a few days.
Garmin likely closed out another record sales year in fiscal 2021 thanks to robust demand for smartwatches, fitness trackers, and aviation GPS platforms. The 2022 outlook might be cautious, though, when it comes to earnings and profitability.
Let's take a closer look at what could be in the results that get released on Wednesday, Feb. 16.
Will market share rise?
Garmin entered Q4 with fantastic momentum. Sales were up 7% in Q3 even compared to booming results a year earlier. Revenue was up 27% through the first nine months of 2021, nearly surpassing its full-year performance in 2019.
Management forecast in late October that revenue will continue expanding at a solid clip through the key holiday season. Sales should land at roughly $1.4 billion in Q4, translating into $5 billion for the full year.
Watch for signs of rising market share across categories like fitness, marine and aircraft navigation, and smartwatches. Wins there should allow sales growth to accelerate to 17% this fiscal year from 12% in 2020. A surprisingly weak number, on the other hand, might indicate mounting supply chain challenges.
Margin declines due to rising costs
Garmin raised its earnings outlook last quarter, but the bigger picture is mixed on profits. Costs are rising quickly, and the company is spending aggressively in places like manufacturing and innovation research.
Look for these trends to be partially offset by rising prices, especially in premium products in Garmin's portfolio. But the company might still report lower operating profit margin in 2021 after several years of steadily rising profitability. Operating margin should land at 24% of sales, management has predicted, compared to 25.2% in the prior year.
Looking out to 2022
The big question is whether Garmin's 2022 outlook will be bullish or conservative after two consecutive years of blockbuster sales gains. It's possible that management forecasts a flat revenue result on Wednesday, which would mark the first time in seven years that sales haven't increased. Yet most investors are looking for revenue to increase by about 7% this year compared to 2021's 17% spike.
There's less certainty about earnings as Garmin deals with challenges including rising costs and the need to raise prices across most of the portfolio. The fiscal 2022 year might mark a second straight annual profitability decline due to these issues.
But shareholders should stay focused on the wider trends that describe one of the most attractive businesses in the tech product niche. Garmin likely notched double-digit sales growth across each of its five core product categories in 2021. Whether it's a relatively simple fitness tracker or a complex marine navigation platform, Garmin is winning market share in expanding niches.
If management issues a weak earnings outlook on Wednesday and the stock falls in response, I'd look at any drop as a potential buying opportunity. Garmin's widening sales base and industry-leading metrics like cash flow and gross profit margin suggest that profits won't stay down for long.