Hi Phil,
I saw you write back to Christine on the blog about practicing and sending you the results to see if we are getting it or not. Well, here’s one.
Garmin Ltd. (GRMN)
This place is a few miles from my home and I love their products. I’m a gadget geek and GPS is usually involved somewhere. Garmin makes a variety of GPS related products for the consumer, commercial and government markets. With GPS devices showing up in cell phones, PDA’s, cars and probably a refrigerator somewhere, I think the market is just getting started. Garmin has a few competitors, but there seems to be enough business to go around.
Here are a few numbers:
ROE(ttm) 24.31
EPS Growth 37.84% vs. last year
Sales growth 21.68% vs. last year
Debt payoff…this is a good one, they have no debt!
Here’s the MOS stuff:
Current EPS: $2.59 EPS in 10: $15 MOS Price: $69.27
Past Growth Rate: 19% Value ps: $560 Current Price: $44.34
Future P/E: 38 Sticker: $139
I’m using the current EPS plus the estimated quarterly (.58) since the quarter is up in a few days. They’ve been blowing by their estimates, so I went with the Zacks average.
If my numbers are right, this is a steal. What do you think?
Mark Wilson
P.S. Have a Great Holiday!
Hi Mark,
You did a very nice job of getting to a value on Garmin. And I like it that you are looking at buying the business because you love the stuff they make and they are local (well as local as a Taiwanese/Caribbean/Kansas company can be!) Garmin rules its world and the GPS market does seem to be the future. So, good job. I thought I'd take a pass at it and show our readers how we might go about this if you never heard of Garmin:
Y: “Do YOU want to own it?” - Do I want to own Garmin, the #1 company that makes GPS? Go buy one and see if you like it. For me, awesome stuff. I'd LOVE to own Garmin.
U: “Understand it?” Uhhh. They help people not get lost? Or get found? I just read about a guy here in Jackson Hole who was hunting for elk antlers and got attacked by a bear. He scrambled up a tree to escape and the bear hung out at the bottom waiting for him. He got rescued by calling on his cell phone and giving his brother his GPS coordinates!
GPS is going to be part of the future. Pretty straightforward. They download data off satellites and make it pretty for us. My rental cars all have GPS now and I've come to rely on it. Email is to snail mail what GPS is to maps. Who knows for sure what new technology can bring, but this does seem pretty long term stuff when our guys in Iraq are buying their own Garmins to replace the crap the military issues them. (Someone tell me WHY it is necessary for the military S-4 shops to get it wrong so often. They do pretty good when it comes to things that go bang but the rest of it is so far behind the civilian market.) On an 'understanding' scale of 1 to 10, Whole Foods is a 10 to me. I get it. Garmin, to me, is a 7. I get it but I'm not as sure about the future for Garmin. I'll do some moat research....
M: “Is there a Moat?”
1. Moat companies have consistently growing numbers:
a. GRMN sales numbers are growing consistently at 27% and moving up. Excellent. Sales gets an A.
b. EPS numbers flattened three times in the last 10 years but growing at 25% and staying in the ballpark. Good. EPS gets an B+.
c. Real Equity is growing consistently at 37% but lately at 24%. Excellent! I love to see real equity growth (not counting the intangibles) because, as the owner, that is MY money! Equity gets an A.
d. Debt is zero. They paid it off! Go baby! Debt gets an A+.
e. Cash is growing at 30% long term but not lately. Now its growing at 8%. Cash growth gets a C and is a bit of a worry.
f. ROIC is sliding but from an insanely high number. Its still 30% which is awesome. ROIC gets an A-.
g. ROE is solid at 22%. ROE gets an A.
h. What the numbers tell us: Without knowing a thing about this company the numbers show a solid moat. That means they have some sort of monopoly. So at this point we have to wonder just what kind of monopoly they have.
2. Monopoly: There are five major monopolies, so which one is Garmin? Let’s do some research on Google. I googled ‘GPS best manufacturer’ and got these stories - http://www.rated4stars.com/html/gps-buyers-guide.html, http://www.business2.com/b2/subscribers/articles/0,17863,548890-2,00.html and http://www.my-esm.com/printableArticle.jhtml?articleID=54201264 which pretty much covers the products. It appears Garmin, a Taiwanese company with a US HQ in Kansas, is the lead dog in the market. 70% of recreation. 60% aftermarket auto, 40% boating, 90% of civil aviation. Go to the Garmin Website to hear their side of the story. They claim #1 and the industry innovators and top brand. They say “We established many "firsts" in the last decade–from landing the first non-precision approach using a general aviation GPS and putting the first GPS/VHF in the palm of your hand to introducing the world's smallest GPS for the outdoor enthusiast. We've discovered that by taking care of the cutting-edge technology, the firsts are taking care of themselves.” So what’s the monopoly?
a. Price? Are these the low price dominators? Nope.
b. Switch? Is it painful to switch GPS’s? Not so much.
c. Toll? If you want a GPS do you have to go through Garmin? No.
d. Secret? Are they the innovators? Yes.
e. Brand? Do you care which GPS you use? Yes.
f. Garmin’s monopoly comes from Secrets and Brand. Their secrets are about consumer design and ease of use – similar to Apple Computer, and, similarly, their Brand might become huge.
3. Future of the industry: Will this industry be bigger or smaller in 2015? Estimates are to triple by 2010. Bigger.
4. Conclusion: There is are big numbers here, a monopoly of secrets and brand and a good future for the industry. That's moat.
(to be continued tomorrow)
