On June 29, 2007, Apple (NASDAQ:AAPL) released the first generation iPhone. From that day on, it was only a matter of time until Garmin (NASDAQ:GRMN) collapsed.

Or at least, that's what the short sellers would have you believe. Despite the fact that nearly every adult in the U.S. now owns a smartphone, and all smartphones are equipped with powerful mappings apps, Garmin has been able to persevere. In fact, Garmin stock is currently trading near a five-year high.

Should investors consider snapping up shares? The stock isn't expensive, but Garmin does face a number of notable challenges.

Garmin isn't terribly cheap, but it's far from expensive
Based purely on valuation, Garmin does not appear to be a bad investment. Trading with a price-to-earnings ratio near 16, Garmin is just slightly cheaper than the S&P 500. On a forward basis, Garmin is roughly in line with analysts' estimates for the broader market.

Garmin is consistently generating free cash flow -- $143 million last quarter -- and returning much of it to shareholders in the form of stock buybacks and dividends. Garmin currently yields around 3.50%, and seems committed to capital returns for the foreseeable future -- it recently announced a slight reorganization aimed at repatriating funds. In total, about one quarter of Garmin's market cap is in cash and cash equivalents.

Garmin is certainly cheaper than its closest competitor, TomTom, which has struggled to remain profitable. Compared to TomTom, Garmin appears to be in much better shape, though that isn't saying much -- TomTom has experienced consistent sales declines since 2010.

Garmin is challenged
Garmin may be in better shape than TomTom, but appears just as challenged -- at least in the long run. On a percentage basis, its automotive and personal navigation systems (its GPS devices) still comprise the bulk of Garmin's revenue and much of its profit. Last quarter, the division generated almost half of Garmin's net sales and nearly 40% of its gross profit. This is clearly an issue for the company, as the steady proliferation of smartphones is increasingly rendering these products obsolete. Particularly as Apple and its rivals look to expand into the automobile with initiatives like CarPlay.

Garmin's management is aware of these challenges -- the company is forecasting a steady, 15%-20% annual decline in the sale of its navigation gadgets for the foreseeable future. In the meantime, Garmin is working to emphasize profitability.

To be fair, Garmin is about more than just navigation systems -- it has four other business units that, combined, bring in half of Garmin's sales and the majority of its profit. The only one of these segments, however, that is particularly noteworthy is its fitness gadgets -- Garmin's lineup of fitness bands and watches has seen impressive sales growth. Last quarter, on an annual basis, Garmin's fitness unit posted 79% revenue growth.

While promising, this business, too, could be challenged. Wearable fitness gadget from a host of companies have flooded the market in recent months, and the most threatening of all -- Apple's long-rumored iWatch -- hasn't been announced yet. The market for Garmin's products is clearly there, but it seems likely that the company will soon face intense competition from a number of tech giants many times its size.

Can Garmin survive the mobile revolution?
Ultimately, investing in Garmin is a sort of bet against the mobile revolution: That a company that still primarily depends on the sale of dedicated navigation units can withstand the onslaught of GPS-equipped smartphones -- or at least, survive it long enough to return an adequate amount of capital to shareholders. So far, that hasn't been a terrible bet: On a total return basis, Garmin shares have actually outperformed the S&P 500 slightly over the last five years.

GRMN Total Return Price Chart

GRMN Total Return Price data by YCharts

But Garmin's days certainly look numbered. Its fitness category looks promising, at least in theory, but will soon face a wave of competition. On Wednesday, for example, no less than four new smartwatches were unveiled at IFA 2014. Samsung's Gear S, Sony's SmartWatch 3, LG's G Watch R, and Asus' ZenWatch are packed to the brim with biological sensors (including heart rate monitors and pedometers) that should make the devices appealing to fitness enthusiasts.

Meanwhile, Garmin's core business -- by management's own admission -- appears to be in inexorable decline. If Garmin was trading at a discount to the market, it could prove to be a great investment in light of its strong commitment to capital returns. But given its valuation, and the rapid progression of mobile technology, investors may be better off seeking a return elsewhere.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.