12 Stocks of Christmas: Garmin

Happy Christmas and welcome to our festive stock-picking series: the 12 Stocks of Christmas. Between now and the Twelfth Night (6 January), Graham, Mark and I will bring you four pieces of companies analysis each - these are all stocks that we’ve got on our watchlists, have added to our portfolios or we’re generally optimistic about for the coming year.

We hope these picks will give you some food for thought in the down time between Christmas and the start of a new year.

Let us know your thoughts on our choices and if there are any companies which are hot on your radar for 2025.

Garmin (NYQ:GRMN) - a cash generative tech company with more to offer in 2025

• Market cap at the time of writing £32bn at a share price of $209

I’m kicking off with the sole US offering on our list because it’s Christmas Day and I am hoping to be unwrapping a Garmin as you are reading this.

In 2024, the US company is probably best known for its wearable devices and exercise tracking equipment. With good reason. Together ‘fitness’ and ‘outdoor’ operations made up 58% of revenues and 68% of operating profits in 2023. And they have been strong contributors to the company’s strong performance in 2024 with sales up 32% and 10% respectively in the nine months to September.

But Garmin is more than a wearable devices business. Founded in 1989, the company’s first product was a GPS unit for boating. Within five years it had added the US Army as a major customer and reached annual sales of over $100m.

Through the 2000s, Garmin continued to build innovative tracking devices for maritime and aviation markets, but also made its first foray into consumer devices. The Forerunner (the world’s first training smartwatch) was launched in 2004 and the Edge (a GPS-enabled cycling computer) came the following year.

But it was the GPS-enabled navigation system for cars which gave the company’s sales a real boost. Alongside TomTom, Garmin shared a duopoly in the SatNav market which saw auto sales rise to 80% of total revenues.

The arrival of Google Maps alongside an acceleration in smartphone capabilities put paid to the SatNav party by the early 2010s, but by then Garmin was once again accelerating in the market for wearable devices. In 2014 the company launched Garmin Health - an ecosystem designed for supporting and promoting data-informed healthy lifestyles. The following year it launched its Connect app, a tool for analysing and sharing fitness data from any Garmin product.

These services provide Garmin with a walled garden similar to those enjoyed by Apple. If you’re a Garmin user, your health and fitness statistics can all be stored and shared in one place. And so when it’s time to upgrade your device you’re likely to go back to Garmin. I have used a Forerunner for tracking and monitoring my training for many years and now that I need to upgrade my device to one that also tracks swimming distances (I have branched out from long-distance running to triathlon), there is no question for me that it’s a Garmin I need.

Quality products reflect a quality business

It’s not just the products that I like at Garmin. This is a very high quality tech business which delivers consistently excellent results for its shareholders.

Sales have risen at a compound annual rate of 9% in the last five years, during which time operating margins have averaged 23%. The company consistently invests a similar amount in research and development as it does in marketing and administration costs, meaning annual expenditure has long-lasting benefits. Most of the company’s R&D expenditure is expensed so capital expenditures are quite low. Cash costs including depreciation, amortisation and capex are consistently low and the company is very cash generative. Both operating and free cash conversion tend to be more than 100%.

Garmin also boasts a remarkably robust balance sheet. Despite its market capitalisation of over $40bn (a size which would put it safely in the top 30 largest companies in the UK), Garmin is completely debt free. The company has over $2bn of cash and a further $414m in marketable securities, enough for it to buy almost any company in the FTSE 250.

Return on capital employed (our favourite measure of quality) has averaged 17% in the last five years. When it comes to Stockopedia’s Quality Rank, Garmin rarely falls out of the top 90.

Can the momentum continue?

But the crucial question for me as I ponder my watchlist for 2025 is whether Garmin can keep up its level of performance.

In the year just gone its shares have risen 62%. In every one of the three sets of quarterly results announced in 2024, earnings have come in materially ahead of announcements. Sales for the full year are expected to be 16% higher than 2023.

Garmin is never cheap, but with a price to earnings ratio of 27x, its shares are currently looking particularly pricey. Even if you adjust for the whopping volume of cash on the balance sheet its enterprise value is almost 24x operating profits.

But I am not interested in Garmin because it’s a value stock, I am interested in it because I believe this is a great example of a long term compounder - a company which has high barriers to entry in a fast growing market and an excellent operating model to take advantage of those opportunities.

In 2025, I expect the fitness and outdoor markets to continue to offer growth opportunities. Health tracking and statistics remain in high demand and Garmin’s recent investment in new product innovation should stand it in good stead to take advantage of that.

But it’s the markets beyond fitness and outdoors which I am especially interested in next year. The company has a long track record in providing navigation services to the aviation, marine and automotive markets, all of which are in the early stages of a revolution in autonomy. When vehicles start to drive themselves, they are going to need especially good navigation systems and this is where Garmin could be set to benefit in 2025.