Garmin: Clearly Something's Not Right

This is a chart of Garmin (GRMN) for the last six months.

click to enlarge

This makes for a good talking point after the recent post on Johnson & Johnson (JNJ), client holding.

The stock was down more than 50% coming in yesterday, and then down a bunch during the day on what appeared to be news about a competitor.

Garmin obviously makes gadgets. Now, not to minimize the utility at all, but a gadget maker is one type of stock that can have a great run for some period of time (could be many years) and then the run ends for reasons that are easy to see and understand, or for no apparent reason at all.

This does not make it a bad area to invest in, but it does make it different than, say, a phone company that you pay your bill to for decades or a company that you have been buying cookies from since you were ten.

I don't follow Garmin very closely these days (I wrote positively about it for WallStrip in November 2006 but can't find it on their site) but something must have changed (I see a downgrade or two and maybe there was bad guidance too?). Another issue, and I think this is important, the climate for stocks has generally not been good since the stock peaked.

Clearly a double digit decline in the broad market cannot account for why a stock would more than cut in half, but it does create an environment where any bad news is likely to be punished more than normal.

Comments

[StockSpy]

Why bother even writing this article? It effectively says: "Yeah, well, I haven't been following this stock, don't really know much about it, and don't have anything meaningful to say about it, but it's down 50%." Complete waste of my reading time.

[Dicki]

Pretty much about right stock spy:)

[M M]

April Fool's was last week- what is this
joke of an article doing here?

No, you don't know anything about the company or the
stock- so don't write about it. If I were you I would
request this to be removed to prevent any additional
embarrassment to yourself.

[blah blah]

This article has no point, accept to point out that Garmin's stock has fallen 50%. No S$^! Sherlock.

[daffy]

Well, the article itself leaves something to be desired . . . I agree.

But as someone who has been watching this stock (since it's peak). I do have to say that I have not seen any negatives coming from GRMN. They have never missed on earnings, and when they did, they beat. They have been rattling the hell out of every martket on the planet, they are scribing contracts with major automobile makers. You tell me what bad news you have seen from this company. The only thing I can see that is wrong, is that the end user might want a more pleasant user interface. I bought in at 60, and again yesterday at 48.25. Whenever I see a guilt by association fall in a stock, it tells me the stock is being hammered for no reason. I think it is the fer that is rumbling through the conusmer electronics market that is doing this. It might even get worse with CC reporting today, but recall that BBY beat a few days ago.

With that being said, if anyone has any negative news to produce that would give insight into why GRMN has dropped in the last to months that would be great. But, please remember, I thought GRMN was overvalued at $120, and maybe even $100.

[RogerNusbaum]

LMAO, what a pissy crowd.

The context is a JNJ post from a few days ago. Some companies can very possibly be held forever JNJ as an example. Some companies, like electronic device makers cannot. Looking forward, I say LOOKING FORWARD, there will be other device makers and fad stocks that will do the same thing.

If you are lucky enough to ride one of them up great but know to get out as there is a good chance it will fall a lot at some point as do most device makers and other faddish stocks.

The four of you seem more motivated to be pissy than anything else but that is the context.

[Slash]

Sorry, Roger -- the "pissy crowd" is right. And let me also add that, beyond just this pointless article, SeekingAlpha has gone into the toilet. I've never seen a website go downhill so quickly. In the space of a year SeekingAlpha has gone from a valuable resource to a purveyor of pap like this article. And please tell Addai that simply regurgitating excerpts from S-1 filings is worthless. Add some value or don't bother writing. Or is it just some pathetic desire to have your names on bylines that results in so many pointless submissions?

[Slash]

Sorry: Abbi, not Addai.

And while we're at it, tell the programmers that your readers would rather have a fast responsive site than a slow cumbersome site. Give up the AJAX features or whatever has bogged the site down so much and made its performance so frustratingly choppy.

There, I'm done. Thanks.

[marlonf]

Roger, I've never seen this site or read your articles before, but how unprofessional can you get? Responding by laughing at and attacking your readers just doesn't seem productive. You might want to take a course on receiving feedback. Can you be open to the feedback of your readers? Can you manage your emotional reactivity and look for the kernel of truth in even 'hard to hear' comments.

[StockSpy]

Guys, let's not go overboard, here. I stick by my sentiment that the article does not provide any useful information (even in the context of the JNJ article, which I have just gone back and read), but perhaps my original post was a bit overboard. I, for one, appreciate that Roger has a sense of humor about these posts.

Roger, the thing I really objected to about this article is the suggestion that "something must be wrong" with Garmin, despite the fact that you haven't been following it and haven't done any analysis, whatsoever. That's not at all the same as saying that this might not be the kind of stock that you would want to include in a long-term, stable portfolio. Had you said that Garmin might be too volatile for such a portfolio, I might have agreed (although I question whether you would have said the same thing nine months ago BEFORE Garmin took a nose-dive...).

[swanlars]

Your response says more to us than the article...you chose the fishbowl. The readers didn't put you here.

[swanlars]

Starting your response with LMAO doesn't make it sound less "pissy". The high road would have earned you more readers elsewhere.

[RogerNusbaum]

Seeking Alpha Editors pick the headlines not the writers. I originally labeled the post Mid Morning on my blog as I put a post mid morning on most days.

[M M]

"Seeking Alpha Editors pick the headlines not the writers. I originally labeled the post Mid Morning on my blog as I put a post mid morning on most days."

So who's fault is it for writing an article with no substance, facts, pertinent information, or objective?

Thanks for the chart, though. I was searching hours for a GRMN chart and couldn't find one. Good thing I clicked on this article.

[KrisWeinisch]

Hey, whoever made the point about Seeking Alpha, couldn't agree more. I can't say it's gone down hill (haven't visited for long enough) but it's definitely at the bottom of the hill. This is the third or fourth time ETrade has directed me to an awful/useless piece of writing. I'm not sure who these editors are but they could use some work.

In my opinion, the point of this article (yes, there is one but it's subtly stated) is flawed. Insinuating that Garmin is a fad device maker is ludicrous. Croc shoes are fad, GPS navigation is "need." Having recently moved across the country, the value of a navigation system has become extremely valuable.

The company makes useful products that consumers use every day to get from point A to point B. They also make products for a number of other industries including hiking and fitness. And what about the financials?

There are few if any companies with the financial strength of Garmin. Consistent earnings increase, EPS increase, Sales increase, cash on hand is strong and no long term debt. This company makes necessary products and is extremely well run.

The stock is down because Garmin and it's competitors are seeing the price of personal GPS devices drop overall in the U.S. and in Europe. That would be a concern if the company didn't have a return on capital of 42%! Clearly that is an unrealistic number to sustain over the long term but the company will continue to grow and prosper.

So now for some predictive writing (Alpha may want to consider this from time to time), BUY THIS NOW. At sub $50 Garmin is more than half it's target price. Even if it loses another 10%, you're going to get that back on the runup. The next earnings report is due in the next month or two and I expect the effects of consumer discetionary spending declines to be seen, but inevitably this stock will rise...and soon.

Good investing-
-KJW

[jadwin79]

What a shockingly unprofessional article with zero useful content. How about an analysis of the company's actual finances and prospects, the outlook for their non-automotive divisions (i.e., will their extremely successful aviation division ever make inroads into the commercial aviation sector?), or a careful review of the competition (focusing on the financial missteps of TomTom, for example, or whether cell phones really will displace PNDs)? Yes, we all know the stock price has plummeted. It would be at least somewhat courageous to actually investigate the reasons behind that drop, going beyond the usual surface-level CNBC blather and turning over some rocks.

[mmeister]

I've bought Garmin at 35,65,99 and 102 because I believe in their management and their products. There's no question in my mind the stock will rebound. I know they don't issue alot of press releases or divulge much info, however I do feel they owe it to their investors to shed some light on what they think has caused this rather dramatic drop in value. And more importantly, what corrective steps they are taking to stop this decline.

[jimmy46]

While you guys are knocking a poorly written blog,

I'M BUYING GARMIN AT 9 TIMES EARNINGS.

This is just momentum trading on the downside,
the stock overshot on the way up,
and now on the correction.

[gstrong]

This was the most pointless thing I have read in months

[User 175749]

GRMN is a good company. They are expanding into India and China. Their gadgets can't be replaced by cell phone. Can one imagine looking at a cell phone while driving to see where one is going. The stock is down because the institutions are leaving it for the time being. If the next earnings meet or beat the estimates, the stock will be back in favor.

[CCR]

GRMN is a good stock as many readers have pointed out.

Here are the latest analyst ratings (as of 4/7/08) ::

REUTERS reasearch rates it as "OUTPERFORM"
S&P Rates it as "*****" (highest at 5 stars)
SABRIENT rates it as "BUY" (their highest rating)
THOMSON rates is as "BUY" (their second- highest rating)

S&P puts GRMN's 12 month target price at $105.00

[paddlinout]

I clicked on a SeekingAlpha link on UnderArmour (NYSE: UA) the other day. The piece cited their inventory build as a negative. The writer admitted to not knowing much about their product, but said his kid doesn't like it anymore but his wife is digging the products. Via e-mail I pointed out to the writer that the Beijing Olympics might be a cause for the inventory build. He replied personally, promptly, and very professionally.

Roger, I'm a neophyte in stock trading, but I've been a writer and editor for 30 years. Writing Rule #1: Write what you know about. Rule #2: Respond kindly to readers who take the time to comment on your work. Rule #3: Don't blame your editors publically, and if you have a legitimate problem with what they're doing, discuss it and figure out how to make it better in the future. For example, send a few suggested headlines and ask that they run the final one past you before publishing.

[me0w]

Discretionary consumer spending might be dwindling, GPS profit margins are coming down, revenues might fall from the 4Q.

1. The American consumer never ceases to spend/astound
2. When your gross is 60+% and net almost 30%, maybe it's time for the margins to come down a bit
3. What cyclical product is exempt from that?

The stock is at P/E of 9 going forward, what!?!?!

Even conservative analsyst have sales growing at 20%.

Buy before Apr 30, because it'll be too late by then.

[RampMan]

I about 5% (err...3% now) of my trading account in Garmin.

Have watched it just keep on sliding. Plus it's terribly volitile.

It's faired worse than any other stock I have. Certainly not as well as Ford who's way up in last few weeks.

Guess that means more cars with fewer GPSs.

I think everybody should consider getting out of Garmin, this week, right away... as I have just a little cash left and would like to get as many shares as I can before something triggers a rise.

[RampMan]

By the way, with gas going up, don't even consider a GPS as an effective way to reduce time, fuel and aggravation.

Consumers on limited budgets certainly won't figure out that saving 20 miles and 20 minutes of drive time a month cuts consumption by more than the cost of the GPS. And they certainly don't need to navigate around obstructions. Arriving on time is overrated. Knowing where you are in an emergency isn't much help either.

SELL SELL SELL

[hardrookwar]

Car sales are down, margins are down, direct competitors are warning, suppliers are warning, consumer confidence is way down, available credit and discretionary spending are shrinking, analysts are downgrading, prices in stores are visibly falling, and Garmin itself announced Q1 will be 40-50% of Q4. These are all a bunch of good reasons for the stock to fall. The last shoe to drop will be Garmin itself issuing a warning or just releasing those earnings on April 30.

But when that shoe drops on April 30, where will GRMN go? Even if it's bad news, the news seems to be factored in already. With a P/E of 12, $4+/sh. earnings(!), dividend of .75, lots of cash on hand, just how far can it really fall on bad news? 7x earnings? GRMN ain't Motorola, people! And good news (like a grab of TomTom's marketshare in europe, perhaps?) could send this stock up 10 pts in a day. A dropoff from Q4 is natural for consumer gadgets (only part of Garmin's business)--and what a Q4 it was, BTW, blowing away every estimate. Q1 08 will still crush Q1 07, yet downgrades may follow. Maybe Garmin pulls a stunt like increasing dividend, or buying back stock, to prevent erosion of share price. They should just keep making great devices. If the stock falls any further, Nokia ought to scoop 'em up. (Nokia won't have the map expense that Garmin has). Either way, the future is bright for LBS and GPS in particular. This is a global market from now on, so don't let US woes distract you from the long term value of GRMN going forward.

[Eck]

My 16-month-old Garmin is in some ways better than the expensive nav system that came in my 9-month-old Honda. Remarkably, it will tell me to turn precisely into a friend's rural driveway.

THANKS, fellow readers, for filling-in the information that I was looking for when I clicked on this HOLLOW article in the first place.

Bought 200 shares Tuesday at $49.90. It had just gone too low to resist. Got slapped Wednesday - should have waited another day. We'll see who's right in the days/weeks ahead.

[raja]

Garmin's problem is that management is too tight lipped. We saw that when there was that bidding war last year and GRMN dropped from 120 to 80 in a matter of couple of weeks.

The sins of not talking to the press, the shareholders or to wallstreet is taking its toll. Add the economic condition to the mix and you have a recepie for disaster.

When will they be proactive and come out in the open??

[Sumarro]

I echo how worthless this article is - particularly Mr. Nusbaum's insinuation that GRMN is a "fad" stock and that it just makes "gadgets". 10 minutes of research would have cleared that up for him. PNDs are just a part of GRMN's quiver. I fly and the best nav/radios (combination GPS and voice tran-ceiver) I use are Garmins and this is a generally accepted fact by the aviation community. Garmin's radios and navigation devices are also big in the marine world. By the way, the margins on these devices are much higher than PNDs. I bought my first Garmin PND 10 years ago (fad?!) and became a dedicated customer due to their quality and customer service. I am about to buy another one. I also have plans to put one of their very expensive entire glass cockpit systems in my kitplane that I am building. So you call this a fad? You call this a gadget manufacturer? And I haven't even gotten into the fundamentals!

[yetisoup]

The market is discounting the future, period. Navigation devices may not be a fad, but they are A) no longer cutting edge, B) Not necessary for the marginal buyer (the people who really find them useful already have them for the most part), C) As with any other electronic device, margins go way down as time goes on (PCs, microchips, PDAs, cell phones, DVD players, flat screen TVs, memory, etc etc). To think this is any different is delusional. Not saying the company is going down the crapper, but margins will continue to drop, and so will the stock.

[RampMan]

THANKs.

Appreciate everyone selling this stock.

Don't mind me. We are adding GPS to two aircraft to be compliant with changes in air traffic. Guess what? Most small aircraft haven't bought yet, but practically speaking have to, to keep flying intrument approaches over the next few years. And with aviation fuel at $5/gal, GPS provides economy, better safety and tremendous reduction of cockpit workload under normal and critical conditions.

On the auto front, anybody notice that the cheap old cab companies, who don't have two dimes, and company fleets are retrofitting older vehicles, AND replacing two year old units. The ever enhanced capabilities of each newer model provides the ROI to keep upgrading.

Now, the question to ask. Where is the market for GPS?

Is it with the existing world fleet of personal and business vehicles (aircraft and cars) ?

Or with the relatively tiny percentage of new vehicles ?

HMMMM. The issue de jour that I hear is that integration with cell phones and such will obsolete Garmin and TomTom.

Think about it. A GPS cannot be used, is NOT APPROVED for navigation unless it is mounted in the aircraft. The GPS is not going to be replaced by a hand held, not gonna happen.
It's not just the rule, it's the only practical solution in that environment.

Now to the car. Which is more likely ?
That we'll all figure out each of our cell phones various cabilities while driving (how many people still haven't figured out how to update their voice mail message).

Or, with GPS become the first data center of the vehicle. Will the dash mounted GPS integrate and become the first capable platform for integration of other data, sattelite tracking, music, data collection ?

Hands free ? It is illegal to drive in Brooklyn Ohio without both hands on the wheel. Explain please, how the cell in your lap is going to help you navigate. My cell phone is the size of a baby ruth, as a navigation tool, reading, inputting and using is terribly difficult as the device was not designed for the application... user input is hard, no vehicle input, etc

I'm betting there isn't enough production capacity to fill the continuing new and replacment opportunities within the existing world fleet.

EXECUTED, $45.25. Thanks everybody

[shareholder]

yesterday's WalMart guidance re: year to date earnings:

"Our initiatives in electronics have improved customer access to leading brands and made Wal-Mart the retailer of choice for entertainment products," Castro-Wright added. "The U.S. stores continued to generate triple-digit comparable sales in flat-panel TVs and GPS units, as well as double-digit growth rates in laptop computers, video games and digital cameras."

biz.yahoo.com/prnews/0...

Garmin appears to have all six of Wal-Mart's top selling GPS units:

www.walmart.com/search...=