Garmin Ltd. (NASDAQ:GRMN) is taking it on the chin by 5.4% this morning on a downgrade courtesy of the good folks at Goldman Sachs, noting a cramp ahead in Garmin’s fitness biz.
GS analyst Simona Jankowski downgraded GRMN stock from “neutral” to “sell,” leaving the price target at $46. That means there’s about 10% downside for GRMN stock from today’s price.
For comparison’s sake, Garmin stock closed at $53.67 Tuesday after the market bid shares up on the strength of Best Buy Co Inc (NYSE:BBY) earnings, which indicated heavy demand for health and fitness wearables.
It’s not like Goldman Sachs is alone in thinking GRMN stock is due for a pullback either: Of the 14 analysts covering Garmin shares, 12 rate it a “hold” and two recommend reducing exposure.
What’s Going on With GRMN Stock?
After all, Garmin has gone the distance this year, gaining 44% before today’s rout. Investors couldn’t reasonably expect such outperformance to continue as comp sales become harder to come by in the shadow of increased competition this holiday season from Fitbit Inc (NYSE:FIT) and Apple Inc. (NASDAQ:AAPL) among others.
That’s not all. The entire consumer electronics segment is chock full of emerging competition that could harm GRMN sales, including everything from virtual reality headsets to home assistants and drones. Jankowski sees that eating up as much as a billion in incremental sales.
“Garmin will face the step-up in direct and share-of-wallet competition during a period of increasingly difficult comps, as it laps its own strong product cycle driven by commercializing its Elevate wrist-based heart monitor technology over the last three quarters (4Q15-2Q16).”
Further, Garmin’s fitness and outdoors segment, which brings in 45% of the company’s revenues, is on track to grow a mere 7% in the second quarter of 2017. That compares to 29% growth in Q2 of 2016.
According to Jankowski, there’s a 71% correlation between the performance of GRMN stock and its yearly growth in this segment.
How does that bode for its competitors? Well, for Apple stock, not very much, as the Apple Watch isn’t as material to AAPL as are iPhone sales. Fitbit, however, is up 2%, as it gladly welcomes GRMN stock holders looking for a better bet in fitness.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.