Shares of GPS-maker Garmin (NASDAQ:GRMN) have had a solid year thus far -- although Garmin's share price is down noticeably from its early July high, Garmin shares, on a total return basis, have outperformed the broader S&P 500 in 2014.

GRMN Total Return Price Chart

Will Garmin continue to reward shareholders? Below are three reasons why Garmin shares could rally. It should be noted, however, that even if all three scenarios play out, there's no guarantee that Garmin shares will rise. A general market downturn, unforeseen misfortune, or pure random chance could weigh on the stock. Nevertheless, investors should welcome the following possibilities.

1. It keeps its GPS business relevant
Garmin's business remains dependent on the sale of its automotive and personal GPS units. Last quarter, sales of these devices generated nearly 45% of Garmin's net sales, 38% of its gross profit, and 34% of its operating income.

This appears to be a problem for Garmin, at least in theory, as that business seems challenged. Even Garmin's management freely admits that it's under pressure, noting that it "remain[s] cautious" on that particular market. The proliferation of GPS-equipped smartphones could eventually undermine the demand for Garmin's automotive products, particularly with new initiatives like CarPlay and Android Auto bringing an unprecedented level of in-car connectivity.

Or maybe not.

Garmin's management admits that it's primarily focused on profitability rather than growth with that business segment. However, Garmin has released some new products in the last year that could keep its GPS business relevant -- its HUD navigation system, for example, projects turn-by-turn directions in a holographic fashion (a feature no smartphone can match).

At the same time, the market for new cars -- particularly in the US -- remains strong. With the average American vehicle more than 11 years old, car sales should remain high for the foreseeable future. New car buyers could opt for models equipped with Garmin's navigation systems, as the company has deals with several major automotive firms, including Chrysler and Volkswagen.

Garmin's management expects this business to steadily decline, a forecast which is likely reflected in the current stock price. But if Garmin can keep its GPS business relevant in some capacity, shares could appreciate.

2. It capitalizes on the wearable revolution
While automotive and personal GPS units make up the bulk of Garmin's business currently, one of its other segments has emerged as a growth engine: Garmin appears poised to capitalize on the ongoing interest in, and emergence of, wearable computing devices.

Garmin's fitness category, which includes a range of wrist-worn health trackers, saw sales growth of 79% (on an annual basis) last quarter. In total, Garmin's fitness products generated almost 20% of its sales, 22% of its gross profit, and 29% of its operating income in the second quarter -- all up noticeably from the prior year.

Garmin's Forerunner-branded watches are aimed at fitness enthusiasts and include heart rate monitors, GPS, and other features that help owners meet their fitness goals. Unlike other smartwatches that have begun to hit the market, Garmin's products are largely stand-alone devices focused solely on fitness. This allows them to excel other areas -- its recently released Vivofit, for example, offers an unprecedented one-year battery life.

In time, Garmin's wearables could emerge as the company's primary business, overshadowing its declining segments in the process. If Garmin comes to be seen as a bet on the future of wearables, rather than a decling GPS firm, shares could appreciate as Garmin's multiple expands. 

3. Short sellers become buyers
Last, and perhaps most significant, would be a potential short squeeze. In recent months, Garmin has been one of the most heavily shorted stocks in the S&P 500 -- currently, Garmin has a short interest near 15%.

These short sellers could turn into buyers if Garmin shares continue to outperform the broader market. Although any positive news could propel shares of Garmin to the upside, the potential move higher could be magnified by short sellers looking to limit their losses. Garmin pays a solid dividend -- the stock currently yields around 3.5% -- which short sellers are on the hook for every quarter. If Garmin's business remains resilient, investors who have bet against the stock could close their positions, sending Garmin shares higher in the process.

Executing in the face of challenges
Ultimately, Garmin could best reward shareholders by proving its critics wrong. Its core GPS business seems challenged, but its burgeoning wearable segment appears promising, posting impressive growth in recent quarters. if Garmin can defy the short sellers and continue to return capital to shareholders, the stock is likely to continue its recent strong performance.

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.