What's Next For Garmin Stock?

Forbes

4 days ago

Garmin (NYSE: GRMN) has regained attention, although not for the reasons that investors might have anticipated. The GPS technology firm recently announced a significant Q2 earnings beat and elevated its full-year guidance; however, its stock has declined by approximately 5% in the past week. What's the reason for this? In a nutshell: it's not about the business—it's the technical indicators. Having surged nearly 30% since April, Garmin moved into overbought territory, leading traders to secure their profits. Adding to the concerns about a potential slowdown in the second half of the year, the sentiment took a downturn even with solid fundamentals. Nevertheless, if you are looking for potential gains with a smoother experience than investing in a single stock, consider the High Quality portfolio, which has outperformed the S&P and achieved over 91% returns since its inception.
Garmin designs and markets GPS-enabled hardware and software across five primary sectors: fitness, outdoor activities, aviation, marine, and automotive OEM. Its advantage is derived from dominating premium niches, particularly high-performance wearables, where it competes less on volume and more on brand loyalty, durability, and integrated technology.
Q2 Earnings: Strong, But Not Enough?
Garmin reported strong Q2 FY2025 figures: revenue increased by 20% year-over-year to $1.81 billion, and adjusted EPS reached $2.17—both surpassing Wall Street predictions. Management also upgraded its full-year forecast, projecting $7.1 billion in revenue and $8.00 in EPS.
So why did the stock decline following the announcement? Profit-taking and technical fatigue appear to be the main reasons. After a steep multi-month increase, Garmin moved into overbought territory, laying the groundwork for a pullback. Some analysts, including those at Barclays, have also pointed out that there could be potential deceleration in the second half, keeping cautious ratings despite the company's optimistic outlook.
Valuation: A Bit Stretched
From a valuation perspective, Garmin is trading at a premium compared to the broader market. Its P/E ratio stands at 27.3 compared to 22.8 for the S&P 500. The P/S ratio is at 6.6, whereas the S&P's is 3.1, and its price-to-free cash flow ratio is 35.0 compared to 20.3. In summary, although the company is performing well, much of the good news may already be reflected in the stock price.
Strong Financials Support the Long-Term Case
Garmin's fundamentals are solid. Over the past three years, it has recorded an 8.7% compound annual growth rate in revenue. In the most recent 12-month period, revenue grew by 18.1% to reach $6.5 billion. Its operating and net margins—25.2% and 22.8%, respectively—significantly exceed S&P 500 averages. Moreover, Garmin's financial stability is impressive, with a 27.3% cash-to-assets ratio and an extremely low debt-to-equity ratio of just 0.3%. This financial discipline provides resilience and flexibility in facing uncertain macroeconomic conditions.
Downturn Resilience: A Historical Weak Spot
Although Garmin's financials are undeniably robust, its stock has historically faced challenges during significant market downturns. In the aftermath of the 2022 inflation shock, GRMN shares plummeted by 56%, which is more than double the S&P 500's 25.4% decline. During the COVID-19 crash in 2020, the stock fell 38.6%, again surpassing the broader market's 33.9% drop. Furthermore, during the 2008 financial crisis, Garmin experienced a staggering 87.7% retreat, which was far worse than the S&P's 56.8% decline. These instances highlight the stock's susceptibility to sentiment-driven sell-offs—even when its underlying business remains robust.
A Smarter Way to Play the Market
Garmin fulfills the criteria for growth, profitability, and financial health. However, following a significant surge, the short-term outlook appears less attractive. The recent decline does not indicate weaknesses in the business; it is more a reassessment of inflated valuations and elevated expectations. In the long term, Garmin continues to be a high-quality name.
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