Garmin Ltd. (GRMN) designs, manufactures and markets navigation and communications equipment for a variety of markets, including aviation, marine, automotive, cellular, OEM and general recreation. Specifically, the company aims to enrich the lives of customers, suppliers, distributors, and employees by providing the very best products that offer superior quality, safety, and operational features at affordable prices. Garmin Ltd. has a market cap of $6.16 billion; its shares were traded at around $30.7 with a P/E ratio of 10.2 and P/S ratio of 1.8. The dividend yield of Garmin Ltd. stock is 2.4%. Garmin Ltd. had an annual average earning growth of 41.7% over the past 5 years.
Normally, technology stocks and value investing are on complete opposite sides of the fence. However, I think in the case of Garmin it can be considered a good value pick. Garmin is the only technology stock that I own. Garmin currently trading at $30.7 a share is about 75% off its high of approximately $120 it reached in September 2007.
A look at Garmin’s balance sheet reveals a company with no long term debt and a high current ratio and quick ratio. Normally, I am skeptical of a technology company’s balance sheet due to the fact that most of their assets are inventory which gets quickly outdated.
However this is not the case in Garmin’s balance sheet. A large percentage of the company’s assets are cash, and the company has enough cash and receivables to pay off all its debt nearly twice! I rarely come across such a unique phenomenon as this in any company. To frame it differently Garmin could pay off all its debt and still have enough cash to pay a 10% onetime dividend. Garmin has a 2.4% yield and a payout ratio of only 26%. The company has been using some of its excess cash to buy back shares, and to make acquisitions.
Garmin has high returns on assets, investments and equity. Comparing the company’s results to competitors and the general market show superior numbers not only based on last years results, but on the previous five years. With high returns on assets and a low P/E it is not surprising that Garmin shows up on Joel Greenblatt’s magic formula investing site for the top 30 companies with a market cap over a billion. The stocks on his screener on average far outperform the market. However, in addition to Garmin’s excellent balance sheet, and high earnings yield and high returns on capital, Garmin also has excellent margins.
|Return on Assets (TTM)||17.86||-0.40||-0.46||4.03|
|Return on Assets - 5 Yr. Avg.||27.40||8.41||6.28||5.70|
|Return on Investment (TTM)||22.77||-0.75||-0.81||5.54|
|Return on Investment - 5 Yr. Avg.||33.77||13.66||10.31||7.43|
|Return on Equity (TTM)||24.85||-1.57||-1.66||9.58|
|Return on Equity - 5 Yr. Avg.||34.97||14.20||12.23||15.63|
As I like to point out, a company’s margins are important, especially to a company experiencing rapid growth like Garmin. The reason is that a company that has very high margins will likely translate revenue growth into higher EPS than in relation to other companies. This means the company is translating higher revenues into higher EPS, and not just into higher market share.
|Gross Margin (TTM)||47.29||1.79||2.96||29.83|
|Gross Margin - 5 Yr. Avg.||47.32||28.69||26.54||29.58|
|EBITD Margin (TTM)||27.92||--||--||--|
|EBITD - 5 Yr. Avg||31.17||15.90||13.44||17.20|
|Operating Margin (TTM)||24.88||-0.36||-0.73||--|
|Operating Margin - 5 Yr. Avg.||28.64||8.30||7.23||19.39|
|Pre-Tax Margin (TTM)||24.56||-0.51||-0.90||8.46|
|Pre-Tax Margin - 5 Yr. Avg.||30.42||8.70||7.49||19.05|
|Net Profit Margin (TTM)||19.87||-0.47||-0.73||6.63|
|Net Profit Margin - 5 Yr. Avg.||25.58||7.23||5.75||13.54|
Garmin Industry S&P Garmin 5yr avg
The company is currently trading at far below its historic average in terms of P/E, P/B, P/S, and P/CF. Based on these measures the stock should be trading between double or triple the price it currently is at. I am not sure that these historic averages were justified even for a company as great as Garmin, however you are buying with a margin of safety based on P/E and taking into account the company’s superb balance sheet, high returns on capital, and high margins. You are getting a high quality company at a low valuation with a 2.4% yield.
While the technology sector is a very competitive one, and the GPS field in particular, I think Garmin is well positioned to outlast competitors. Garmin is facing numerous competitors including Google (GOOG) and Tom Tom. Proof of this statement is that despite the stiff competition, the company has been maintaining a high US market share and is increasing its foreign market share rapidly.
Disclosure: Author holds a long position in GRMN