Garmin trades all over the map
Posted
Feb 20 2008, 03:23 PM
by
Robert Walberg
One of the most annoying, difficult-to-understand occurences on Wall Street for the average investor is when a company reports a blow-out quarter and the stock takes a dive. It goes against logic to see and hear good news about the stock you own, only to watch it take a beating from the marketplace after the release. Today's whipping boy was navigational device maker Garmin.
The stock tumbled more than 7% in active trading for the crime of beating fourth-quarter estimates by a wide margin, guiding fiscal 2008 revenue and earnings above Street projections and announcing that the board approved the repurchasing of 5 million shares. If that doesn't leave you scratching your head and wondering what on earth it takes to drive a stock higher in today's climate I don't know what will.
I mean the company sold almost as many portable navigation devices in the fourth quarter of 2007 (5.5 million) as it did in all of 2006! This is a firm with incredible sales and earnings momentum. Point in fact; the company has now beaten The Street in eight of the last nine quarters.
Yet none of that matters in today's extremely cautious environment. At any hint of risk -- real or perceived -- investors are selling first and asking questions later. In Garmin's case the problem was that margins were a little weaker than expected due in part to the competitive pricing climate this holiday season. Nevertheless, the margin erosion didn't prevent the company from delivering on its earnings promise given the fact that sales across all product lines and all geographies (even in competitor TomTom's back yard as European sales jumped by 74%) were extremely strong.
Investors also found the inventory and accounts receivables numbers to be a bit distressing as they were up big year-over-year. Yet, when sales are this strong big jumps in these areas shouldn't be cause for concern. It's only when the gains in these areas significantly outpace sales growth that investors need to begin worrying.
Garmin is enjoying tremendous success with its products both here and abroad. New navigation products for the automotive, airplane and marine markets, combined with the upcoming introduction of its well received nuvifone -- a touchscreen phone with built in navigation -- should continue to drive sales for fiscal 2008 and 2009. Toss in a smart management team, a healthy balance sheet (free cash flow almost doubled), and discounted valuations and there's no reason to think that this stock won't navigate its way back above $100 per share within the next year.
So growth oriented investors should take advantage of Wednesday's market silliness and buy on weakness.
