GRMN - Embedded Expectations Analysis - 2019 05 10
Garmin Ltd (GRMN:USA) currently trades above recent averages relative toUAFRS-based (Uniform) Earnings, with a 17.9x Uniform P/E. However, even at these levels, the market is pricing in bearish expectations for the firm, and while management has concerns about margins, legal costs, and their growth outlook, GRMN's positioning in niche markets and confidence in the strength of Tacx suggest longer-term upside remains warranted.
Specifically, management may lack confidence in the sustainability of their operating margin and their ability to enter the aftermarket diagnostics market, and may have concerns about continued increases in operating expenses. Moreover, they may be downplaying concerns about legal expenses in their Fitness business, and may have concerns about their growth outlook for the Aviation business and ADS-B.
However, given confidence in the strength of Tacx, as well as their strong niche market positioning, GRMN can likely outperform bearish expectations in the long run, indicating equity upside is warranted.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
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