Garmin Ltd (GRMN, Financial) recently experienced a daily loss of 4.73%, yet it has gained 21.98% over the past three months. With an Earnings Per Share (EPS) of 7.09, investors are prompted to question whether Garmin's current market price reflects its true value. Is Garmin significantly overvalued? This analysis delves into Garmin's valuation to provide a clearer picture.
Company Overview
Garmin produces GPS-enabled hardware and software across five key markets: fitness, outdoors, auto, aviation, and marine. Specializing in niche activities such as scuba diving and sailing, Garmin not only sells products through distributors but also maintains relationships with original equipment manufacturers. Operating in 100 countries, Garmin's strategic approach to licensing mapping data supports its specialized hardware solutions. Currently, with a market cap of $31.20 billion and a stock price of $162.66, Garmin appears significantly overvalued when compared to the GF Value of $122.34, suggesting a potential discrepancy between market price and intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. This valuation suggests that Garmin's stock should ideally trade at its GF Value line. Currently, Garmin's stock price significantly exceeds this line, indicating that it might be overvalued, which could lead to poorer future returns.
Financial Strength and Profitability
Investing in companies with robust financial strength reduces the risk of permanent capital loss. Garmin's cash-to-debt ratio of 20.75, which ranks better than 83.87% of its peers in the Hardware industry, underscores its strong financial position. Additionally, Garmin's profitability has been impressive with an operating margin of 21.85%, positioning it better than 94.85% of its industry counterparts.
Growth and Value Creation
Garmin's growth metrics are pivotal in assessing its valuation. The company's 3-year average annual revenue growth rate stands at 7.7%, with an EBITDA growth rate of 2.4%. Moreover, Garmin's Return on Invested Capital (ROIC) of 23.98 significantly surpasses its Weighted Average Cost of Capital (WACC) of 6.61, indicating effective value creation for shareholders.
Conclusion
In conclusion, while Garmin (GRMN, Financial) showcases strong financial and profitability metrics, its current market price significantly exceeds its GF Value, suggesting it is overvalued. Potential investors should consider this analysis carefully when making investment decisions. For more detailed financial insights and to explore other high-quality investment opportunities, visit Garmin's 30-Year Financials and the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
