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March 31, 2008
Garmin Touching New Lows
Here is a poster-child for how hot sectors don't always translate into hot stocks: The GPS business is booming, with such location devices being the hot product this past Christmas, and lots of heat, but sector kingpin Garmin is touching new 52-week lows today.
[Update] My friend Om is, as always, right there on the "death of GPS" story. Good stuff.
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Garmin is misunderstood and under appreciated by analysts. What it shows to me is that when analysts are too bullish on a stock (very high price targets, lots of Buy/Strong Buy recommendations) it has limited upside, e probably a big downside.
Near term the slowdown in consumer spending is real and estimates for 08 may be a bit high, but the stock is comfortably trading at less than 13x this year's earnings and close to 11x 2009 earnings.
I have tested PNDs from Garmin, Magellan and TomTom, as well as the limited GPS capabilities in the iPhone. The iPhone is fine to use when walking on the streets, but is no match to PNDs when driving and when you really need directions. PNDs are not just a GPS chip, they are a combination of fast microprocessing (to recalculate and redraw maps fast), friendly user interface, good screen in a variety of light conditions, etc. This is a short term bump in the road (because of slowing consumer spending) that will prove a great buying opportunity for Garmin stock.
Bound to happen. When there are 30 sell side analysts following a smaller company like this, it is usually a bad sign.
Check out my photo from CES.
http://flickr.com/photos/aschmitt/2197498227/