Garmin (GRMN) has outperformed the stock market with a 45% year-to-date gain as its fitness products continue to gain market share. The company has reported several quarters of rising revenue and profits, propelling the stock higher. I am bullish on Garmin’s fitness products, solid financial metrics, especially from its fitness and outdoor segments, and attractive dividend yield. In my opinion its GRMN presents a long-term opportunity for investors.
High Sales Growth in Most Segments
My first reason for bullishness is Garmin’s continual revenue growth.
Garmin Ltd. designs, develops, and markets GPS navigation and wearable technology products for fitness via five key segments: Fitness, Outdoor, Aviation, Marine, and Auto OEM (Original Equipment Manufacturer). The Fitness and Outdoor segments comprise over half of the company’s total revenue. While all of the company’s segments were up year-over-year in the first 26 weeks of the year, Aviation sales were flat year-over-year in the second quarter. Meanwhile, Outdoor sales dropped by 2% year-over-year.
However, the Fitness segment grew by 28% year-over-year, while the Marine and Auto OEM segments jumped by 26% and 41% year-over-year, respectively. High growth rates in these areas suggest that Garmin can continue to deliver elevated revenue and net income growth for its investors.
Garmin’s Leading Position in the Fitness Industry
Garmin’s focal position in the fitness industry is compelling and enhances my confidence in the company’s near-term and long-term growth. Its user experience plays a big part in driving sales up. A high percentage of Garmin’s total sales come from its smartwatches, which are specifically for athletes who want metrics on their workouts. Garmin’s smartwatches provide valuable information, such as the number of calories you burn in the workout, your average pace per mile, and other details.
While the data offers great perks, the company’s ability to organize data makes it a top choice for many athletes. Consumers can also upload their smartwatch entries to see the routes they took and gather more data. People have become increasingly obsessed with data, as it offers suggestions for improvements and highlights what may be going wrong.
Garmin is riding the tailwinds of the running boom. The walking and running wear market is expected to maintain a 5.1% compounded annual growth rate from now until 2030. The pandemic ushered new growth for the industry, as 28.76% of runners started during that time. As more runners compete in races and strive to perform better, many will presumably be drawn to Garmin’s product line.
The company has also participated in over 1,000 research studies in areas that athletes care about, such as sleep, well-being, rehabilitation, and physical activity. Those studies further establish Garmin as a fitness industry leader and a company striving to know its clients and produce better products.
Leadership Raised Expectations
With great success comes greater expectations, and Garmin’s management sure enough raised its expected revenue and EPS for 2024.
First, in its second quarter, GRMN’s consolidated revenue increased by 14% year over year, while net income jumped by 4% year-over-year.
Following its positive second-quarter results, Garmin anticipates generating $5.95 billion in revenue and a pro forma EPS of $6.00 throughout 2024. Previous guidance called for $5.70 billion in revenue and a pro forma EPS of $5.40.
The Stock Offers a Good Dividend
The last reason on the bullish agenda is Garmin’s consistent dividend yield. The stock currently has a 1.64% yield and trades at a 26 P/E ratio. The company has consistently raised its dividend for several years, including a recent hike this summer. Garmin’s quarterly dividend per share increased from $0.73 per share to $0.75 per share, a 2.7% year-over-year increase. Some stocks offer higher growth rates, but Garmin combines growth with a respectable yield for current investors.
The fitness company only has a 41% dividend payout ratio, giving it ample space to support higher dividend hikes in the future. The running boom and rising demand for fitness products can spark more demand and accelerate dividend growth in the future.
Furthermore, Garmin’s own data suggests that running is becoming more mainstream. On Global Running Day, Garmin users ran nearly 11 million miles, beating last year’s total by more than two million miles. This indicates that more people are buying Garmin watches and that its customer base is getting more engaged.
Is GRMN Stock a Buy, According to Analysts?
While Garmin is capitalizing on growth opportunities and has outperformed the stock market, not every analyst is feelingoptimistic about the stock.
GRMN stock is rated as a Hold among five analysts. Its average price of $167.75, representing an 8% downside from current levels. The highest price target of $185 per share suggests a moderate upside for the stock. The most recent rating arrived on August 7, with a few analyst ratings coming on August 1. Those ratings came shortly after the Switzerland-based company released its second-quarter earnings report on July 31.
The Bottom Line on Garmin Stock
Garmin looks poised to capitalize on the running boom and a strong demand for fitness products. The company offers top-tier products, but fitness isn’t the company’s only specialty. While all segments are up year-over-year over the past 26 weeks, Marine and Auto OEM sales shined in the second quarter.
Fitness sales also continued at a torrid pace, making up a significant percentage of Garmin’s total sales. Given all the reasons mentioned and a respectable dividend yield, Garmin stock is worth considering. Therefore, I am bullish on GRMN stock.
