Garmin keeps being such a good example that I think I’ll drag it out once more for you guys to look at.
Right now it's selling for $54 on a long plunge down from $125. Gotta love that stuff if you like to trade the good ones. This year, if you use a 30 day MA, you would have bought in April for a couple of weeks (0% ROI), June and held until October (90% ROI), Oct-Nov for a small loss, Dec for a small loss and, unless you really like to buck trends an industry group sell off, you’d be done right up to now.
Overall you’d be well above 80% for the year trading this one. Not bad for a stock that sold 12 months ago for $53 and is selling today for $54.
And here’s the best part.
This thing looks undervalued to me.
I think it's worth somewhere between $76 and $107, depending on how seriously you squeeze down on their earnings growth rate. I’m using 16% for growth (from the CFO’s recent estimate) and a 25 historical PE to get $107. And a 12% growth rate to go with that 25 PE gets me to $76.
It might keep getting hammered, but I don’t think the company is going to just let it keep dropping. They’re going to buy back stock at this price and it’s a deal for the shareholders if they do.
Not to get too far afield here, but do you understand why it’s a good deal for the shareholders if Garmin buys back at $54? Because if it is indeed worth $107, they are getting $2 of equity for every dollar of equity they are spending, simply by reducing the number of shares in the market. Buying back shares is not always such a good thing. If management does it simply to make the stock hold up, and if the stock is overvalued and that’s why its falling, they are idiots and should be fired. They are buying back $1 of equity and paying $2 for it.
I just flew a flight simulator that has the Garmin-1000 PFD and MFD all-glass displays that handle all the flight instruments. That is one awesome piece of gear. I want to buy a plane just so I can play with it. And my friend, Melissa (I’m too old to say ‘girlfriend’) has a Garmin GPS mounted on the dash of her car that is portable. Her kids gave it to her for Christmas and it is soooo much better than that mess of a GPS that Hertz uses in their rental cars. And my handheld Garmin GPS kept me from getting lost in a snowstorm backcountry snowboarding this winter in the Tetons. This is to say that these guys make cool stuff.
This is a volatile stock but a wonderful business.
How sure am I it will be around in 10 years? Not as sure as Coke, but it's right up there. Huge moat, founder-run, Taiwanese, awesome big 5 plus debt and no real sign of slowing down the steady growth. Still, I’d trade it, not just buy and sit. This market can take even the most wonderful business down. Trade it on the 30 day MA to take out some of the fast in and out trades. But only if you get the Meaning of Garmin.
Now go play.
