Garmin Ltd.
(NDAQ: GRMN) are trading sharply off of their highs of around $120 per
share in late October to their current levels of around $70 per share
on concerns about consumer spending and market saturation. Many
shareholders are hoping that these concerns are overblown and that the
company can work to turn itself around and return to its previous
highs. So, what is the company really worth and what do its future
prospects look like?
Many analysts are now saying that it may be time to buy as the
GPS-maker isn’t seeing any signs of weakness impacting its U.S.
business and management believes the concerns surrounding European
personal navigation market saturation are overblown. The company expect
growth of at least 40% in 2008 in all but the most penetrated countries
with Garmin taking share. These were the two largest concerns that
weighed on the stock in recent months, particularly as the U.S. economy
moves closer to a recession that could spread to other developed
countries as well.
There are still some problems with Garmin, however. Many analysts
believe that the current margin relief is only temporary and that
negative structural trends in mix and pricing should make it difficult
for the stock to sustainably outperform. In other words, more
competition will force the company to compete on pricing and bundle
addtional products and services, which will make it difficult to live
up to the high expectations that it has from its past. Many are also
concerned about the company’s attempts to penetrate the handset market
and would prefer to see a greater focus on software partnerships.
In the end, the first quarter is likely to be a good one with
seasonable shifts to higher-end merchandise should prop up margins and
ease investor concerns. However, increased competition and competitive
pricing will likely keep the company from seeing the earnings surprises
to which many are accustomed. This means that we may not see another
run-up in the stock price as we did last year. However, many believe
that the stock could reach $80 to $85 per share in the near term. This
make GRMN a stock worth watching!
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