Garmin Ltd (GRMN, Financial) has recently witnessed a 10.62% gain, with a 7.59% increase over the past three months. Its Earnings Per Share (EPS) (EPS) stands at 5.17. But the question remains: is the stock fairly valued? To answer this, we will conduct a thorough valuation analysis. So, let's dive in!
Company Overview
Garmin Ltd (GRMN, Financial) is a renowned producer of GPS-enabled hardware and software across five verticals: fitness, outdoors, auto, aviation, and marine. The company licenses mapping data to enable its hardware, often specialized for niche activities like scuba diving or sailing. Operating in 100 countries, Garmin sells its products via distributors and relationships with original equipment manufacturers. The company's current stock price is $113.42, with a market cap of $21.70 billion. Comparing this to the GF Value of $122.3, it appears that Garmin (GRMN) is fairly valued.
Understanding GF Value
The GF Value is a proprietary measure that provides an estimate of a stock's intrinsic value. It's calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
According to GuruFocus Value calculation, Garmin (GRMN, Financial) appears to be fairly valued. The stock price is likely to fluctuate around the GF Value Line. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. The cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Garmin has a cash-to-debt ratio of 15.16, which ranks better than 80.63% of 2370 companies in the Hardware industry. Overall, the financial strength of Garmin is 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Garmin has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.90 billion and an EPS of $5.17. Its operating margin is 20.1%, which ranks better than 93.02% of 2451 companies in the Hardware industry. Overall, the profitability of Garmin is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Garmin is 8.6%, which ranks better than 62.03% of 2328 companies in the Hardware industry. However, the 3-year average EBITDA growth is 3.9%, which ranks worse than 62.85% of 1957 companies in the Hardware industry.
ROIC vs WACC
Another way to assess a company's profitability is to compare its return on invested capital (ROIC) and the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Garmin's ROIC is 18.26, and its cost of capital is 6.28.
Conclusion
In conclusion, Garmin (GRMN, Financial) stock appears to be fairly valued. The company's financial condition is strong, and its profitability is strong. However, its growth ranks worse than 62.85% of 1957 companies in the Hardware industry. To learn more about Garmin stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
