Valens Research - Weekly Equity Idea Highlight - 2018 12 19
GRMN is currently trading at a 15.8x Uniform P/E (Fwd V/E'). At these levels, the market is pricing in expectations for Uniform ROA to decline from 17% in 2017 to 10% by 20212 accompanied by 7% Uniform Asset growth. These expectations imply that the market believes the firm's competitive advantage has completely dissolved, and the firm will see profitability fade towards historical corporate averages.However, analyst forecasts show that the market may be too pessimistic, as sell-side consensus estimates reflect expectations for ROA′ to maintain at current levels going forward, not decline. Analysts recognize that the company has done an excellent job over the past several years of transitioning from their legacy GPS market, which has been disrupted by Google Maps and other offerings, into niche offerings, like active lifestyle products, aviation, marine, and other outdoor products. As the company has executed this transition, they have seen improvement in ROA′, while also seeing steady growth for the underlying business.
Current market expectations, for them to be removed or competed away from these niches where the company still has growth opportunities, appears overly pessimistic.
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- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
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