Garmin Ltd., established in 1989, it provides a broad selection of products in multiple segments, recognized for their value, performance, innovation, and design. By using GPS and other GNSS technologies, Garmin improves navigation and tracking. Their products feature systems such as GLONASS, Galileo, and BeiDou, with complimentary access to GPS signals.

Garmin's range includes health, fitness, aviation, marine electronics, and collaborations with vehicle manufacturers for hardware and software solutions, catering to various consumer needs worldwide. The company has over 21,800 employees.

The company operates within five primary segments: Fitness (28% of FY 24 sales), Outdoor (31%), Aviation (14%), Marine (17%), and Auto OEM (10%). Its geographical revenue distribution is as follows: Americas (48.2%), Europe/Middle East/Africa (36.8%), and Asia/Pacific (15%).

Enhanced R&D focus

Garmin’s product innovations are the result of a strong focus on R&D and a close collaboration between its engineering and manufacturing teams. R&D expenses rose by 10% in absolute dollars, approximately $26m, but decreased by 150bp as a percentage of revenue in Q1 25 compared to the same period last year. The increase in absolute dollars was mainly due to higher engineering personnel costs.

Updated guidance

The company has announced that, based on its Q1 25 results and the current global trade environment, it is revising its full-year FY 25 revenue forecast to around $6.85bn. In addition, it will uphold its pro forma EPS at $7.80, with a gross margin of 58.5% and an operating margin of 24.8%.

Steady increase in net income

Garmin has posted decent revenue CAGR of 8.1% over FY 21-24, reaching $6.3bn, due to sales growth across all product categories and strong demand for wearables. Operating income rose at a CAGR of 9.4% over the same period to $1.6bn in FY 24, with margin expanding by 85bp to 25.3%. Net income rose at a CAGR of 9.3% to $1.4bn in FY 24.

Strong performance led to positive FCF over the last three years (FY 21-24), reaching $977m in FY 24 from $389m in FY 21. As a result, cash and cash equivalent increased from $1.5bn to $2.1bn by end-FY 24. However, total debt also rose from $90.6m to $163m during the same period. Consequently, the gearing ratio rose from 1.5% to 2.1%. Moreover, ROE improved from 18.6% to 19% in FY 24.

In comparison, the company’s local peer Arista Networks Inc. outperformed, with a revenue CAGR of 33.4% over FY 21-24, reaching $7bn in FY 24. Operating income grew at a CAGR of 47.1% to $2.9bn. However, net income dropped at a CAGR of 50.3%, reaching $2.8bn.

Looking ahead, analysts anticipated revenue CAGR of 8.5% over FY 24-27, reaching $8bn. In addition, analysts expect EBIT CAGR of 8.6% to $2bn, with margins expanding 10bp to 25.4% in FY 27. Net income CAGR of 9.5% to $1.8bn. Likewise, analysts estimate an EBIT CAGR of 17.3% and a net profit CAGR of 16.3% for Arista Networks.

Strong stock performance

Over the past year, the company's stock has delivered impressive returns of approximately 26.2%, thanks to a strong earnings trajectory. In comparison, Arista Networks’ stock has delivered lower returns of about 12.5% over the same period. In addition, the company paid an annual dividend of $3 in FY 24, resulting in a modest dividend yield of 1.4%. Moreover, analysts expect an average dividend yield of 1.7% over the next three years.

Garmin is currently trading at a P/E of 25x, based on the FY 25 estimated EPS of $8, which is higher than its 3-year historical average of 21.9x, although lower than Arista Networks’ valuation of 38x. Likewise, the company is currently trading at an EV/EBIT multiple of 21x, based on FY 25 estimated EBIT of $1,722m, which is higher than its 3-year historical average of 20x, but lower than that of Arista Networks (28x).

Garmin is somewhat liked by seven analysts, with two of them having ‘Buy’ ratings and five having ‘Hold’ rating, with an average target price of $198.5. The stock is currently trading 1.4% above its target price, indicating limited upside potential. However, a near-term price correction could offer investors a valuable opportunity to revisit the stock.

Overall, the company reported strong Q1 25 results, with significant revenue and profit growth driven by high demand for advanced wearables. The company continues to innovate through enhanced R&D efforts and maintains robust financial health, with positive free cash flow and increased cash reserves. Overall, Garmin's strategic focus and market position indicate continued growth and expansion.

However, the group faces several risks, including cybersecurity threats, failure to develop and launch new products may significantly reduce demand, resulting in lost sales and profits. The company's revenue heavily depends on new product introductions in the face of rapidly changing technology and customer needs, requiring continuous investment in R&D.