Garmin (NASDAQ: GRMN) is currently priced around $61. The GPS company competes against the likes of Fitbit (NYSE: FIT). Garmin’s products have been outsold by Fitbit’s uber-popular Versa smartwatch. However, Garmin has plenty of room to grow and that much more market share to win. Let’s take a look at whether Garmin is a buy at its current price.
Garmin has emerged as one of the wearable industry’s trailblazers. The company’s overarching portfolio is performing quite well as the masses shift toward highly sophisticated fitness trackers. Garmin has reported 4 percent sales growth, which is partially attributable to the company’s highly diverse line of products. Garmin offers everything from top-end health trackers for fitness-minded individuals to GPS hiking products used in the greater outdoors.
This extensive portfolio creates the potential for the company to report sales boosts even amidst a slight decline in Fitbit sales. This is precisely why investors should never count Garmin out.
Garmin has an advantage over the Fitbit when it comes to what matters most: profitability. The profitability gap for Garmin’s offerings will likely continue to expand across fiscal 2018. The company’s gross profit margin is up a full percentage point in 2018 alone. Garmin seems to have a never-ending stream of fun, cool and groundbreaking products. Garmin fitness, outdoor and marine segments have become quite diverse in terms of offerings, prices and utility. All in all, the company’s margins are nearly 60 percent of sales while Fitbit’s margin is mired right around 44 percent of sales.
Few, if any, companies do battle with the likes of Apple and remain in business in the ensuing years. Garmin appears to be one of those special businesses. However, Garmin’s smartwatches are particularly concerning. The company’s Fenix franchise was meant to propel its new smartwatches to new heights, yet Fitbit’s Versa device generated more sales than Fenix and most other primary rivals.
Though Garmin is not dominating across the board, it is still doing fairly well in its head-to-head battle with Apple. Garmin has squared off against Apple in the realm of automobile GPS and wearables such as smartwatches. Though Garmin’s automobile business is on the outs, its wearables have quickly become quite the chic devices. Though Apple’s sales will likely continue to grow across posterity, the fact that Garmin is still doing well is a testament to the merits of its wearables.
Garmin’s business is divided up into five main sections: outdoor, fitness, aviation, auto and marine. As noted above, Garmin’s automobile division is on the decline. However, the other categories listed above are either growing or stagnating. Garmin will squeeze out what it can from its auto line before completely focusing on its growth categories.
All in all, fitness is the company’s fastest growing segment. Garmin’s offerings in this area are watches primarily used for athletics ranging from triathlons to swimming. The company also sells low-cost activity trackers for competitions. However, smartwatches are poised to be the company’s primary driver of growth. Thankfully, Garmin’s smartwatches are its best offering, putting the company in optimal position to benefit from the smartwatch trend.
We also need to talk about the company’s relationship with one of the largest media conglomerates on the planet. Garmin’s alliance with Disney is a savvy business move that has the potential to pay considerable dividends down the line. We will soon know whether youngsters are eager to don fitness trackers on their wrists featuring the likes of Disney characters. The Disney-themed bands for the likes of the Vivofit jr. 2 will provide little ones with the motivation necessary to keep track of activity levels and stay fit. This new offering functions alongside a helpful mobile app.
The hope is children will live a more active lifestyle while using their Garmin device at a high frequency, encourage their friends to do the same, and ultimately make the most of today’s technology. Kids’ wearables will continue to be all the rage in the coming holiday season and beyond. Garmin should benefit quite nicely from this trend thanks to its strategic alliance with Disney.
Garmin’s stock is worth a buy, but watch it closely after pulling the trigger on a position. Monitor this stock’s performance closely in the coming months, review your position and proceed accordingly. If it appears as though the smartwatch trend is beginning to dissipate, do not hesitate to reduce your position in this growth stock.
Regards,
Ethan Warrick
Editor
Wealth Authority
