Garmin (GRMN) Margin Decline Challenges Bullish Sentiment on Quality and Premium Valuation

Garmin (GRMN) reported profit margins of 22.6%, down from 25.5% last year, and earnings have grown by 9.4% per year over the last five years. This year’s earnings growth slowed to 3.6%, trailing its own five-year trend and the expectations set for the broader US market, with both earnings and revenue forecast to rise at 6.4% and 7.1% annually. Investors are now weighing Garmin’s consistent track record and ongoing dividend appeal against the reality of compressed margins and a premium valuation relative to peers.

See our full analysis for Garmin.

The next section puts these earnings results side by side with the dominant narratives driving sentiment on Simply Wall St. Let's see which stories stand up to scrutiny and which might be overdue for a rethink.

See what the community is saying about Garmin

Premium Services Drive Segment Margins

• Garmin’s service and Fitness segment margins are benefiting from strong demand for new premium offerings like Garmin Connect+ and advanced wearables, both cited by the consensus narrative as expanding margins in these areas.
• The analysts' consensus view highlights that the launch of AI-based health insights and new devices such as the vívoactive 6 smartwatch are expected to fuel subscription-based, higher-margin growth.
  • Consensus notes high-margin service revenues should help offset slower growth rates elsewhere, improving earnings durability.
  • It also credits new Aviation segment products and 23% revenue growth in EMEA for broad-based, positive effects on margin trends.
• For a full breakdown of how premium product launches are shifting Garmin's growth drivers, see how the current narratives stack up against these figures. 📊 Read the full Garmin Consensus Narrative.

Operational Expenses Outpace Revenue Growth

• Operating expenses, including R&D and SG&A costs, increased 10%, now outpacing forecasted annual revenue growth of 7.1% according to the EDGAR summary and consensus.
• The analysts' consensus view acknowledges that while revenue is set to grow thanks to new product launches, rising operational expenses could erode operating margins.
  • Consensus narrative highlights that if revenue growth cannot keep up with the expense run rate, current margin compression may continue or worsen.
  • Analysts also point to external risks like commodity prices and trade policy, which, together with Marine and Outdoor segment headwinds, could further pressure margins.

Trading at a Premium to Peers

• Garmin is trading at a Price-to-Earnings ratio of 26.3x, more than double the industry average of 10.6x and above closest peer valuation at 11.9x, as noted in the EDGAR summary.
• The analysts' consensus view notes that despite this premium, analysts set a price target of 231.14, slightly above today’s share price of 214.97, which implies some expect earnings quality and growth drivers to support further upside.
  • Consensus highlights that to justify the target, investors need to see sustained growth and margin stability to support a premium valuation.
  • Yet with DCF fair value at 225.78, there is tension between bullish long-term assumptions and near-term margin compression fueled by rising costs.

Next Steps

To see how these results tie into long-term growth, risks, and valuation, check out the full range of community narratives for Garmin on Simply Wall St. Add the company to your watchlist or portfolio so you'll be alerted when the story evolves.

Do the numbers suggest a different story to you? Take just a few minutes to build your own viewpoint and shape the narrative. Do it your way.

A great starting point for your Garmin research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

See What Else Is Out There

Garmin's earnings growth is lagging its historic pace and peers, as rising costs and margin pressure raise questions about its premium valuation.

If you’re concerned about overpaying for compressed growth, use our these 831 undervalued stocks based on cash flows to zero in on companies currently trading below their intrinsic value.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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