Investors who prefer value over puffery should consider equities that aren’t just fueled by hype. In that vein, GPS and navigation company Garmin (NASDAQ:GRMN) has a decent dividend yield and an attractive valuation. Studying Garmin stock should be instructive as it presents an object lesson in the difference between price and value.
To butcher a famous Warren Buffett quote, price is what you pay, but value is what you get.
Even beyond the traditional metrics of price and value, it’s essential for informed investors to look under the hood and determine if a company is taking steps to grow and innovate. Fortunately for Garmin stockholders, the answer appears to be “yes” on all of these fronts.
Price Is Nice, but Value Is Invaluable
The novel-coronavirus calamity really put the smackdown on Garmin stock in February and March. A brutal series of lower highs and lower lows sent the share price from more than $100 to less than $65 in a matter of weeks.
It wasn’t a company-specific issue to Garmin as the dent to the GPS-device market was essentially collateral damage. As evidence of this, traders should observe that shareholders recovered the vast majority of their losses by the first week of June.
With that recovery, however, comes possible concerns for value investors. If the stock price is the highest it’s been since 2007, it is time to take profits and head home? That’s certainly an acceptable thing to do if you’ve reached your profit target already.
But just because Garmin stock is at its highest level in 13 years, that doesn’t necessarily mean that it’s overbought. To help determine this, we can use the age-old valuation metric of the trailing 12-month price-earnings ratio.
At 19.5, it’s attractive compared to Garmin’s peers. Looking at it from a different angle, Garmin’s trailing 12-month earnings per share comes to $5.09. That’s pretty good for a stock that trades between $95 and $100.
By the numbers, Garmin stock’s not really overpriced at all. Next, we need to see if the company is enhancing its shareholder value through newer and better product offerings.
Expanding the Lineup
It does indeed seem to be the case that Garmin is moving forward with novel products in the navigation market. That’s important as the company’s economic moat depends on both the quality and the quantity within Garmin’s product portfolio.
To begin with, Garmin is launching a new series of oversized truck GPS navigators known as dezl. These will be available in three display-size options: 7-, 8- and 10-inch. Plus, they’ll provide easy-to-read high-definition touchscreens along with several mounting options.
Moving from trucking to boating, Garmin is releasing the company’s first marine-focused GPS smartwatch to offer solar-charging capabilities. This exciting line of marine GPS smartwatches will be called the quatix 6X Solar.
Going solar is a forward-thinking move on Garmin’s part with this product launch. Dan Bartel, Garmin’s vice president of global consumer sales, further elaborates on the difference between the quatix 6X Solar and previous models:
“We’re excited to introduce solar charging into the new quatix 6 series, giving users everything they’ve come to know and love from this sophisticated and connected marine smartwatch series, now with even longer battery life performance. … Because of its unique power-replenishing technology, the quatix 6X Solar gives mariners more on-wrist time to enjoy their favorite activities both on the water and on land.”
In addition, Garmin’s Autoland system, which is part of the company’s aviation business unit, just got a nice upgrade. Specifically, the Federal Aviation Administration approved Autoland for use in Piper M600 model jets through the integrated G3000 flight deck.
Clearly, Garmin’s market foothold is expanding and diversifying. Going forward, investors should look for more upgrades and innovations from this industry leader.
The Takeaway on Garmin Stock
Price-related concerns appear to be overstated given Garmin stock’s real value proposition. And with the company taking the lead in multiple navigation-market niches, Garmin’s appeal is only getting stronger.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
