Should You Navigate Away From Buying Garmin’s Stock?

With shares of Garmin (NASDAQ:GRMN) trading at around $39.79 is GRMN an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

Should Garmin’s prospects lead you toward buying its stock, or will you be led into a lake? In case you haven’t already heard, several people have driven into a lake because they listened to their GPS system. Whether this was the fault of the GPS system or the driver at the wheel is debatable. The good news is that most people are smart enough not to drive into lakes and rivers, or off cliffs.

However, Garmin did drive its investors off a cliff in 2008. While it might be true that almost every stock got hit hard in 2008, Garmin’s stock plummeted in a way that is nearly incomprehensible. Imagine a suicidal man standing at the edge of a high cliff and then jumping. During the drop, the wind slows him down a little (we’ll pretend this is an exceptionally light individual.) Just prior to a ‘SPLAT!’ the suicidal man lands on an enormous trampoline provided by the local fire department. This then allowed the individual to bounce back up, but not nearly as high as he was previously. Yes, this story is highly unrealistic, but it’s exactly what has happened to Garmin’s stock since 2008. The ultimate point here is that another type of cliff might be coming, and if that particular cliff arrives, then Garmin will likely fall just as hard as it did in 2008. For now, let’s assume (or at least hope) that there will be no cliff.

Currently, Garmin has a Forward P/E of 13.86 and a 4.60% yield. Analysts are pretty evenly spread out between Buy, Sell, and Hold. Goldman Sachs (NYSE:GS) downgraded the stock to Sell and set a $34 price target on the stock. At the time, Garmin was trading at $37. It’s now selling around $39.79. Does this mean Goldman Sachs was wrong? We’ll have to dig a little deeper…