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Tue, Feb 17, 2004

Motley Fool: Garmin Faintly Praised

But It's Still A Stock You'd Want To Own

Investors woke up in a bad mood last week, quickly dumping shares of Garmin for not living up to lofty expectations. Shares in the maker of global positioning (GPS) equipment were smacked down over 10% to $46.82.

While Garmin's fourth-quarter performance outpaced expectations, its forward guidance didn't sit well with analysts.

Revenue for the quarter came in at $170.1 million, boosting full-year revenue to $573 million -- 23% over 2002 sales. Both measures were above the company's earlier guidance of $155 million to $160 million for the quarter and $558 million to $563 million for the year. A consistent moneymaker, Garmin's net income for the year increased to $178.6 million, a full 25% higher than last years.

In case you missed Garmin's products on the store shelves over the holidays, it is the premier supplier of navigation electronics that uses GPS satellites for accurate positioning. In addition to products used by outdoor enthusiasts for activities such as hiking and boating, the company supplies the aviation industry with flight navigation and communication equipment, on both an original equipment manufacturer (OEM) and aftermarket basis. 

Started in the late 1980's, Garmin mostly developed products for the military and aviation industry. As consumer use of GPS technology has grown, Garmin has leveraged its expertise to take a commanding lead in the market. A whopping 80% of Garmin's fourth-quarter revenue came from the consumer products segment. This segment also grew at a nice clip of 29% in 2003 compared to last year -- and many industry watchers think the proliferation of GPS technology into consumer electronics is still in its early stages.

While the GPS market has largely escaped the hype of other high-tech segments, Garmin's fiscal performance has not gone unnoticed -- the stock is priced with expectations for above-average growth. After yesterday's drop, shares in the company currently sit at 28.5 current earnings, and 25 times the mean forward estimates given by the company.

But to this Fool, Garmin is the kind of company you feel good about owning -- great margins, consistent cash flow, and a dominant position in its market. And I'm in good company -- fellow Fools Jeff Fischer and Rex Moore have been eyeing Garmin as well. With so many unprofitable companies with overpriced shares dominating the technology space today, a steady performer with a bright future like Garmin is worth a look.



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