The S&P500 The index may have just hit a new all-time high, but there’s been an even better place to invest your investment dollars. Over the past five years, the overall return on investment of GPS navigation and wearable technology has been industry-leading Garmin (NYSE: GRMN) has beaten that of the popular stock index. And there are good reasons to believe this record will continue.
The S&P 500 just surpassed the 5,300 level for the first time, closing at a new record high again this week. The index, which includes a wide range of company stocks, has doubled in the past five years, including dividend payments. But Garmin shares are up about 150% in that time. And an increase after the most recent quarterly earnings report could be the start of many more.
Winning the race
Garmin has a diversified range of outdoor lifestyle products. The company transitioned from a focus on automotive GPS years ago, and the company has been in a growth mode for the past decade. Turnover in the fitness segment rose by 40% in the first quarter to a new record.
Each segment reported higher year-over-year sales, with total sales increasing 20%. The company’s latest guidance is for 10% revenue growth in 2024 over 2023. This growing revenue is the reason the company’s profits have been steadily rising for years, as the chart below shows.
Even Garmin’s automotive segment has been rejuvenated. Sales to automotive manufacturers (OEMs) increased 58%, mainly due to growing shipments of domain controllers to BMW. That’s an example of how Garmin continually innovates and develops new technologies for private and commercial customers.
Cash flow offers options
There’s one key part of Garmin’s business that suggests the company can continue to outperform the S&P 500 in the coming years. The company is generating huge amounts of cash. Operating income of approximately $1.1 billion last year was 6% higher than the previous year. And the money generated from operations is put to good use to ensure growth continues.
A look at the history of research and development (R&D) spending tells the story.
That R&D has led to new products from Garmin, along with upgrades to existing offerings. Garmin’s smartwatches are known for their long battery life, which is measured in days and weeks rather than hours. But some models can now be charged via solar energy, keeping the batteries charged for months.
Developments in the health sciences include a growing number of sleep tracking metrics and an electrocardiogram (ECG) app that can record heart rhythms and check for signs of atrial fibrillation (AFib) or normal rhythm. New safety options include the inReach satellite communications device that can alert emergency services and an underwater communications network for messaging between divers.
These are all features that help Garmin attract new customers and entice upgrade purchases from existing customers. And yet, even after reinvesting in the company, there is still plenty of money left to return to shareholders.
Garmin pays a dividend that has grown steadily over the years and has a new share buyback program. With approximately $3.3 billion in cash and marketable securities on its balance sheet, the company also has the ability to grow through acquisitions. These ingredients combine to create a recipe that could lead to another five years of market-beating returns for Garmin investors.
Should You Invest $1,000 in Garmin Now?
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Howard Smith has positions at Garmin. The Motley Fool has positions in and recommends Garmin. The Motley Fool recommends Bayerische Motoren Werke Aktiengesellschaft. The Motley Fool has a disclosure policy.
Prediction: This Stock Will Continue to Beat the S&P 500…and Here’s Why was originally published by The Motley Fool
