uploads///Garmin profit margin

Are Garmin Shares Overvalued?


Apr. 22 2019, Published 11:58 a.m. ET

High forward PE ratio

Garmin (GRMN) shares are trading a forward 2019 PE ratio of 23.4x. The ratio is 21.9x for 2020. Compared to Garmin’s earnings growth of 1.6% for 2019 and 5.3% for 2020, you can see that the stock is overvalued at the current prices.

Garmin shares have risen 44% since December 2018 due to strong fourth-quarter earnings and tech stocks’ recovery. However, are the company’s earnings above analysts’ estimates enough for investors?

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Why is Garmin trading at a PE ratio of 23x when the earnings growth is 1.6x? The company has a dividend yield of 2.6%. The stock will be overvalued even if it loses over 50% in market value.

Garmin’s sales are estimated to rise at a faster pace than its earnings, which indicates low operating leverage. The company will need to grow its earnings by at least 20% to keep investors interested.

Garmin stock had a fantastic run over the last three years. The stock rose more than 100% during that period.

In the last three years, Garmin’s EPS rose at a CAGR of 15%, while the stock generated compounded returns of 28%. Is Garmin’s market rally over?

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Competition might impact sales

Garmin’s revenue growth over the next few years will likely be lower than the overall wearable market. The company is struggling to hold its own in a market dominated by Apple and other large players.


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