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Let's talk about the popular Garmin Ltd. (NASDAQ:GRMN). The company's shares received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$106 at one point, and dropping to the lows of US$92.68. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Garmin's current trading price of US$95.38 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Garmin’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What's the opportunity in Garmin?
According to my valuation model, Garmin seems to be fairly priced at around 16.37% above my intrinsic value, which means if you buy Garmin today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $81.96, there’s only an insignificant downside when the price falls to its real value. In addition to this, Garmin has a low beta, which suggests its share price is less volatile than the wider market.
What kind of growth will Garmin generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -2.5% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Garmin. This certainty tips the risk-return scale towards higher risk.
What this means for you:
Are you a shareholder? Currently, GRMN appears to be trading around its fair value, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on GRMN for a while, now may not be the most advantageous time to buy, given it is trading around its fair value. The price seems to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on GRMN should the price fluctuate below its true value.
If you want to dive deeper into Garmin, you'd also look into what risks it is currently facing. Case in point: We've spotted 2 warning signs for Garmin you should be aware of.
If you are no longer interested in Garmin, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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