Garmin Ltd. (GRMN)

MOSCapital (96.18) Submitted: 6/1/2009 1:54:47 PM : Start Price: $19.47 GRMN Score: +32.07

There isn't much doubt, from my perspective, that Garmin is an undervalued stock. It is trading at only 6x its earnings, which is near the company's historic lows. This alone says nothing, but combined with no debt, a 28% ROE, $11 book value, an astounding 43% insider ownership, only 23% institutional ownership, $4.6 in cash per share, and a current ratio of 6, this stock looks considerably cheap.

Now whether or not this stock is a long term opportunity is speculative as to whether they can hold off the rest of its competitors in all of Garmin's end markets. With a ROE of almost 30%, the returns that Garmin currently generates will probably be eaten away by an increase in competition in the GPS/Personal Navigation industry. The GPS industry looks like it will soon undergo a change from a specialty product to a near commodity with it becoming more common, and this change might take many many years, but as far as im concerned thats where i'm looking if I am going to value Garmin as a business. I see Garmin as the best placed company to grab ahold of the reins in this Industry looking to the future for many reasons, most of which are outlined below.

Reasons for Garmin's outperformance:

Only GPS/Personal Navigation company that leads the market in all sectors(hiking, fishing, marine, aviation, personal, etc.)

Most Garmin competitors specialize in only one or two of Garmins end markets whereas Garmin is present in almost all of their competitors markets and then some (Navico = fishing,hiking,hunting, TomTom = Personal and Automotive GPS)

Management has almost a 50% stake in the company (they want to see Garmin do well probably more than we do)

Expansion outside the traditional GPS market (Nuvi Phone could provide another extremely profitable end market for Garmin)

Large amount of cash and no debt will allow Garmin to plow tons of money into R&D for future products, a task most other GPS/Personal Navigation companys cannot do because they do not have the cash hoard that Garmin does.

Bottom Line:
Garmin as of right now looks cheap in accordance with its current valuation, which I believe should be closer to $45 or $50. This is mainly because the stock took a severe hit, like a lot of companies did, with this current economic turmoil. The risk with this stock below 45 or 50 dollars looks to be very minimal in my eyes, but beyond that lies strictly with how well Garmin can defend its market leader position in GPS/Personal Navigation as well as extend beyond that as they are currently trying to. The main roadblock I see to Garmin being seen as a severely undervalued stock is that the licenses to the Global Positioning Satellites isn't exclusive and could hurt Garmin in the long run, if other companies such as Tom Tom take a competitive position in the matter, which they will try to because that is how they will eat at Garmin's market share. The current risk is minimal at $21 dollars a share for the market leader in a rising industry, and the opportunity for even greater than expected return is evident, but not guaranteed (as nothing is guaranteed in the stock market). If Garmin takes the reins as it should, the market will eventually recognize their industry prowess and price the stock accordingly, which could be well into the triple digits within the next 3 to 4 years or more, but all else aside this stock should be currently valued at closer to $50.