Why Did Garmin Stock Tank Today?
Key Points
Garmin upped earnings guidance, but not enough for some investors.
Sales jumped 12%, but that was lower than the 20% increase reported in Q2.
Garmin stock had been up more than 20% year to date before today's drop.
- 10 stocks we like better than Garmin ›
Garmin (NYSE: GRMN) reported strong third-quarter earnings today. That might have investors wondering why the stock is crashing. The Global Positioning System (GPS) technology company said sales rose by double digits and raised its profit forecast for the full year.
Yet Garmin shares were lower by 9.1% as of 12:50 p.m. ET. So what gives?
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Image source: Garmin.
When good isn't good enough
Garmin reported a 12% jump in revenue year over year. Sales in its largest business segment, fitness, soared 30% versus the year-ago period. But investors seem to be focusing on two things in deciding to sell the stock today.
The company's recent results had been stellar. Sales in Q2 soared 20% year over year, so a 12% jump in Q3 may have been somewhat of a letdown for some shareholders. Garmin shares have also been rising in recent months, and high expectations were built in.
Garmin's forward price-to-earnings (P/E) ratio recently hit a three-year high of about 32. Today's correction could be a good opportunity for investors to buy shares in a company with growing sales and a stellar balance sheet.
Garmin bulls should be happy that management increased profit guidance for the year by boosting operating margin and earnings per share estimates for 2025. New product launches last year led to tough comparisons in this quarterly period.
Garmin generated $425 million in free cash flow, but paid out just $173 million for its quarterly dividend. It also ended the quarter with about $3.9 billion in cash and equivalents.
A buying opportunity
The company is doing well, and today's drop presents a good opportunity to buy a cash-rich, dividend-paying stock with a growing underlying business.
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Howard Smith has positions in Garmin and has the following options: short December 2025 $270 calls on Garmin. The Motley Fool has positions in and recommends Garmin. The Motley Fool has a disclosure policy.
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