Garmin - Terminal Decline or Deep Value

[Myth465]

Here is a good write up with great comments - http://www.gurufocus.com/news.php?id=79713

 

I listened to a technology event for the company and thought about it a bit. Everyone dismisses the company due to the user / smartphone market eating up the auto / mobile division. Everyone agrees that will happen, but it will likely happen overtime. We can consider that business in runoff, and know that Garmin will extract cash from that segment, as well as try to continue to grow it for low to no capex. They mentioned possible agreements with car companies to install the device.

 

If we take the cash, put that business into runoff with no hope of growth, and put a decent multiply on the other 3 decently moated segments then you get a decent value calculation. The question is do we have much of a discount.

 

The other issue is Management. They appear very reasonable but I will need to do more reserach. They are buying back shares, paying an increased dividend, and not wasting cash.

 

Rick what are your thoughts?

[rick_v]

I am going to let you guys work on this one for a bit and then come in with my research or part of it. Its a relatively new position for us so I am probably going to hold back a lot and also want to say that I don't know how big of a position it will be.

 

In short- I do know that in 5 years and 10 years Garmin will continue to be the rolls royce of the GPS market. From the taxi driver in dubai who I saw using one to the truck driver in Shanxi province, the theory that everyone will have smart phones is a flawed one, and the theory that every car will come with a GPS system is too flawed! I would put my money on a different theory which is that wide adoption of GPS devices such as garmins is only starting in emerging nations.

 

Please keep in mind, there are still about 3 billion humans who have never driven a car in their life.

 

Finally, I will give you another hint about GRMN. They have a Cayman Islands structure like GLRE so basically their 1.7B in cash and securities will compound tax free over time. And they pay me a sweet dividend to stomach the potential volatility (which I really don't mind).

 

Also look at the quality of the insiders!

 

 

[Myth465]

Thanks for the tips. I saw the releases about the move, and will check those out as well.

 

What got me thinking is Europe and other areas are just getting to this sort of stuff while we are only beginning the early stages of moving away (and its really only the early adopter crowd). As you said the emerging markets havent even scratched the surface yet. We went to Brazil, and would have been lost without a GPS.

 

Interesting idea, it and Heelys are at the top of the list of things to look into when time permits.

Now you have me wanting to look into MIM. This reminds me of MSFT, but with better allocators.

[CONeal]

I have started to look into this company,  just from a very high level this is my irrational thought regarding the viability of the company.  I’ll admit I am technology challenged so take this with a grain of salt but if you see issues with my thoughts please feel free to speak up.

 

The first thought that comes to mind is everyone is so worried about the PUD not being a sustainable business due to smart phones overrunning the segment.  Supposing a worst case scenario in this market wouldn't Garmin still be able to sell their service as an app on smart phones?  Thus, alleviating some of the loss if completely forced out of this segment. 

Then again a company like Google or Apple would have to spend a lot of time and money too really compete with Garmin and that doesn’t even guarantee success.  It would be far cheaper for them to just buy Garmin.

Garmin has a good moat and people recognize them as a leader in GPS.  I really don’t see the company being threatened by smart phones.  A Garmin device would still be cheaper than paying for the data plans only using it for GPS.  Most people are not on the bleeding edge of technology.

 

The aviation and automobile segments seem fine in my view as manufactures will be placing these directly into cars with screens large enough to assist the driver in navigation.  Currently the screen on a smart phone would be a hazard in my view for use during driving.  They could make the screen bigger but then it really no longer a phone since it’s too big to carry around.

 

The business was booming during easy credit, wondering how people view the value of the device while living within their means.

 

[jasonw1]

I owned GRMN for a couple of years but sold out several years back. It's a great company, great engineering, quality and trustworthy management, but share price has gone from 120 to 30 because of PE contraction. I think it's getting interesting at this point, as I don't believe smartphone will replace all the demand for GPS. I have a smart phone and have 3 GPS options on it, tried them all and none of them worked as well as my Garmin, they're such a hassle that I don't use them anymore.

 

In some degree, the landscape of GPS a few years back was similar to PC industry. You have the map providers (Navteq and another one in EU I forgot the name), they're the equavelent of OS, provides data and platform and have increamental update which give them endless upgrade cycle, great business, I was a Navteq stock holder too but it got bought out by Nokia, the other one was bought out by Tomtom (?)  

 

Then there are chip manufactures, SiRF was the best in the class at that time and had the chance to be Intel of GPS, that didn't play out and ilooks like it got bought out by a PE firm.

I thought GRMN as the DELL of GPS, great execution and efficiency, but they don't have deep of moat with the device only, they are the best in class but had to face brutal competion and dropping price.

[CONeal]

Whoa, I thought Garmin had their own mapping software.  This changes things a bit

[vinod1]

Rick and Myth - Thanks for bringing this up. This is a good lesson for me not to dismiss a company outright without any examination because of the seemingly obvious reasons.

 

Vinod

[shalab]

Can Garmin get into the smartphone market? Probably. What is the chance of nuking profits in going after the smart phone market? Remains to be seen...

[Myth465]

Can Garmin get into the smartphone market? Probably. What is the chance of nuking profits in going after the smart phone market? Remains to be seen...

 

I actually dont see them being successful here. I just dont see what they bring to the table vs. HTC, Samsung, Sony, or other Manufacturers.

[Mikenhe]

Can Garmin get into the smartphone market? Probably. What is the chance of nuking profits in going after the smart phone market? Remains to be seen...

 

garmin have released a phone in conjunction with tmobile (and maybe others - I know I have seen it on the tmobile site). Thats a tough market to break into.

 

I have a tom tom that I purchased a couple of years ago and found it to be pretty good. I did buy further updates for it - for when I travelled to England and wanted the gps there. I do now have a gps enabled smartphone - I have it hooked up to the speakers and play music and podcasts on it as I'm driving - I've used the gps app on the phone a few times and found it to be fairly accurate - plus it cuts off the music and delivers the directions over the speakers. I don;t find the need to be looking at the screen (apart from my ocd tendencies to want to know exactly where I am and how far to the next exit).

 

 

Given the quality of the gps service on the phone and automatic upgrades etc (plus the ability to search for a place and just click to get directions) I can't see me buying another gps device.

 

 

the only issues that I would consider is that I don;t want to be using my phone abroad dueto the costs

of the data service and that once you are out of the main coverage ares its possible that the phone (and therefore the gps) can drop out of coverage and it would probably then be as clueless as I am as to my location).

 

I think garmin need to develop a partnership with a major carrier and expand their influence that way.

 

 

 

[elltel]

In China a company recently listed called Autonavi. They are software maps only and can be downloaded on to mobile phones. It can be found on itunes for example.

Garmin aren't in China, neither are Tomtom.

Satnavs are about 150usd so still out of reach of most people. My cousin uses the downloaded software on his smartphone.

[hyten1]

personally i find garmin interseting... however at this moment i would like to have a bigger margin of safety

[nodnub]

Can Garmin get into the smartphone market? Probably. What is the chance of nuking profits in going after the smart phone market? Remains to be seen...

 

garmin have released a phone in conjunction with tmobile (and maybe others - I know I have seen it on the tmobile site). Thats a tough market to break into.

 

I have a tom tom that I purchased a couple of years ago and found it to be pretty good. I did buy further updates for it - for when I travelled to England and wanted the gps there. I do now have a gps enabled smartphone - I have it hooked up to the speakers and play music and podcasts on it as I'm driving - I've used the gps app on the phone a few times and found it to be fairly accurate - plus it cuts off the music and delivers the directions over the speakers. I don;t find the need to be looking at the screen (apart from my ocd tendencies to want to know exactly where I am and how far to the next exit).

 

 

Given the quality of the gps service on the phone and automatic upgrades etc (plus the ability to search for a place and just click to get directions) I can't see me buying another gps device.

 

the only issues that I would consider is that I don;t want to be using my phone abroad dueto the costs

of the data service and that once you are out of the main coverage ares its possible that the phone (and therefore the gps) can drop out of coverage and it would probably then be as clueless as I am as to my location).

 

I think garmin need to develop a partnership with a major carrier and expand their influence that way.

 

I have a nokia smartphone. I can download free worldwide maps from the nokia website and put them on my phone. The GPS functions fine without a data plan. The GPS reciever receives GPS satellite signals for free, and depending on the phone, it can receive additional assistance from cell phone tower triangulation (this does not add any usage to your data plan).   I don't even have a data plan and this work fine.

 

--

GPS will work anywhere that there is line of sight to the sky (that's where the GPS satellites are) so long as it can see more than a couple satellites (to triangulate your position in 2D)

[rick_v]

Hyten I feel the same way thats why I am building a position. I would like to see it go lower and build an average somewhere in the low 20's. But that is a good point and the one I made originally on the Munger board.

 

As you can see the last two days have been difficult to build a position but the prior week was easier. Now why in the world wouldn't I accumulate a position like GRMN all the way down from 28 to 20 over a few months. @ 20 this would be even more of a steal!

[LC]

Old thread but I have been interested by Garmin recently.

 

To answer the thread title, it appears "deep value" was the right answer.

 

Curious what the board thinks on the valuation here. I think the product offering is attractive, I think it also has tailwinds behind it. IMHO it trades at a "somewhat" reasonable valuation in the age of YOLO.

[grc1980]

I've been looking into Garmin as well and I'm split on it at the moment.  Personally I think that its currently over priced, along with most of the market at the moment. 

 

It's a slow growth company, where the PND market in Autos is in a slow death, although they have landed some OEM contracts with a few car manufactures it'll never get to where it was.  The personal sports equipment segment and maritime has had amazing growth during the pandemic and I think this strength will continue for awhile yet.  Aviation is being hammered, but they have just had FAA certification for their auto land features for their glass cockpits used in business aviation and I think that will recover in the next year or two.

 

A good thing is that Garmin is sitting on a pile cash, has virtually no debt and acquiring software companies at the moment to support their sports division.

 

The only real big red flag I have at the moment is that there is a lot of insider selling at the moment and no buying, but I feel that is due to the high valuation at the moment.

 

In short... I can see a solid mature stable company that I like, however I'll wait for the price to come down before I start to get excited by it.

 

[alpha]

personally i find garmin interseting... however at this moment i would like to have a bigger margin of safety

 

This is basically how I feel, a good company but hard to buy in with the overall markets so high.

 

Garmin seems to do very well in the niche markets it operates in with quality products and high customer satisfaction. Their recent acquisition of IERCC seems to put them in a really good position in the outdoor sports/rec safety market, a market that I would expect to have good margins going forward and potential moat characteristics.

 

The certification of their autopilot systems in the aviation sector also seem like another good revenue stream with room to run.

[perulv]

Is the valuation that high now? EV/Ebit aroundt 15, P/E under 20, for a company with two digit ROA that is market leading in (some of?) their segments. At least in sports/outdoors, it seems Garmin is the dominant brand in my circles. I guess we could turn that on its head and ask how can they grow. I am tempted to buy, but agree that it is not necessarily much margin of safety. 

[LC]

Yeah the big question here is how much can they grow. Particularly if we see more wireless and satellite networks being built out - this could provide future competition that I am not sure garmin could manage outside of dropping prices. 

[nsx5200]

They are the leader in their very small ponds.  IMHO, their biggest competitor is Apple.  Every time Apple makes their phone/watch a little better, Garmin’s moat gets smaller.  Great pivots from Garmin over the years, but can they really keep fighting the Apple beast?  Unlike Home Depot vs Amazon, where there are natural moats, I don’t see that in Garmin.  Doesn’t mean it’s not there.  I just don’t see it, but I haven’t been looking.  Let me know if there new insights.

[Aurel]

12 hours ago, nsx5200 said:

They are the leader in their very small ponds.  IMHO, their biggest competitor is Apple.  Every time Apple makes their phone/watch a little better, Garmin’s moat gets smaller.  Great pivots from Garmin over the years, but can they really keep fighting the Apple beast?  Unlike Home Depot vs Amazon, where there are natural moats, I don’t see that in Garmin.  Doesn’t mean it’s not there.  I just don’t see it, but I haven’t been looking.  Let me know if there new insights.

Maybe Garmin is more the "riches in niches"-play with fatter margins long term?! Look at aviation...hard to imagine, that we are flying on apple screens soon.... but every Pilot has an iPad. Every third pilot has an apple watch. mh.

 

Just a thougt..