Value Investing Experiments: The Best Player in the GPS Devices Market?

Many car drivers have been noticing the increasing popularity of GPS navigators, they are offered optionally on many new models, but most people get them by purchasing them in a specialized electronics store. Investigating companies with a very low amount of debt made me fall on a very familiar company: the GPS maker Garmin Ltd.

Garmin Ltd. was incorporated in the Cayman Islands on July 24, 2000 as a holding company for Garmin Corporation, a Taiwanese corporation, in order to make possible a public offering of Garmin shares in the U.S. Credit Suisse, First Boston and Merrill Lynch were the lead underwriters of their 2000 initial public offering, selling 21.0 million shares at $7 per share. Garmin owns all of the operating companies in the Garmin group.

As stated by the company, Garmin Ltd. provides navigation, communications, and information devices, which are enabled by global positioning system (GPS) technology. Garmin has two segments: consumer, which accounted for about 91% of their 2008 revenues and the remaining 9% from the aviation industry. Consumer products include handheld GPS receivers, portable automotive navigation devices, and fixed-mount GPS/Sounder products, which are used in automotive, marine, and recreation applications. Aviation products include GPS and VHF navigation enabled receivers.

What makes this company very interesting is the fact that the it has been growing very impressively, and at the same time gaining a big market share of GPS receivers. At the end of 2008, the company had no long term debt. The common shareholders' equity of the Garmin Ltd. has been growing by 29% over the past five years. There is little probability that the company will achieve such levels but it is a great point to start from. The last five years 30% profit margin also ensures that their profits will remain strong even after such difficult economic conditions as we witnessed in 2008 and throughout the rest of 2009.

2008 was, as for many companies, a very difficult one for Garmin Ltd. Still, longer-term growth generators will aid profits. The company has quite a lot of new and improved software devices to be introduced shortly. These improvements will boost the features of existing items in its mapping, aviation, and other business segments, thus giving the company an even greater competitive edge and market-share lead. It also has launches for two new phones within the next couple of months. These actions will likely increase advertising costs, but should increase awareness about the company, too. Also, Officers and directors own a cumulative amount of 45.8% of common shares. This ensures that they are very likely to take actions that will be favorable to the shareholders of the company.

At current prices, I estimate Garmin Ltd. To be a great long term buy and should provide satisfactory performance over the next 10 years.

10-year target selling price: 73$

Disclosure: The author has no position in GRMN but intends to initiate one in the coming weeks.