Are insiders taking the recent run up in Garmin Ltd. (NASDAQ:GRMN) as a chance to get out before a slowdown in unit sales volume takes its long-term toll on the company? Garmin is a provider of navigation devices, but has faced stiff competition from mobile phone based navigation of late. According to the latest round of 13F filings with the SEC, Robert Joseph Caruso with Select Equity Group increased his position by 37%, while Jim Simons with Renaissance Technologies initiated a position in the stock during the second quarter. Overall, the second quarter hedge fund activity in Garmin was positive. See all funds owning Garmin.
However, since the end of June the company is up over 10% and insiders have been selling throughout August and into September; most notably CEO Min Kao and Director Donald Eller. The stock sales range between $40-$42 a share, while it is currently trading just above the $42 mark. Nine different insiders have sold off shares so far this year, with the earliest insider purchase we have on record being as far back as mid-2009.
Garmin competes with the likes of TomTom NV (AMS:TOM2) and Harman International Industries Inc. (NYSE:HAR). TomTom is Garmin's closest pure GPS competitor, but Garmin has aggressively taken market share from the company in recent years. TomTom now trades below $4 and is down almost 80% from its 2005 IPO price. While Garmin trades at a P/E of 14, TomTom trades at a 36 and Harman at 11. Harman is also below TomTom and Garmin on a P/S basis at 0.8, versus TomTom's 1.4 and Garmin's 2.8.
The company impressed hedge funds and other investors with its recent positive string of EPS estimate beats. For the fourth quarter of 2011, Garmin posted EPS of $0.85 versus estimates of $0.68; the company also beat first quarter estimates of $0.43 by posting $0.45, and then beat estimates by over 50% for the second quarter, posting EPS of $0.98 versus estimates of $0.63.
Although the company has managed to beat expectations of late, Garmin has seen continued volume decline, namely due to pressures from mobile devices. The volume decline will likely continue as phones with native navigation programs become standard, as well as, the standardization of built-in GPS systems in vehicles.
Garmin's dividend, yielding 4.3%, should be able to withstand near term pressures, as the company had over $1.2 billion in cash on hand at the end of the second quarter. The real challenge for Garmin, however, is innovation. The company appears to understand this need, spending 11% of sales on R&D in 2011. However, Garmin is expected to only add $0.01 to its EPS from 2012 to 2013, with 2012 estimated EPS of $2.89 increasing to $2.90 in 2013. The company's biggest headwind will be mitigating the market share infringement on personal navigation devices, which is Garmin's largest revenue generator. For the first half of 2012, Garmin earned approximately 55% of its total revenue from this group of products.
Two of the company's key indirect competitors are the mobile phone providers, Apple Inc. (NASDAQ:AAPL) and Google (NASDAQ:GOOG), both of which offer mobile navigation programs on their mobile phones. Most smartphone makers note that one of the most used features on their devices is the navigation system. Apple's iOS6 now offers turn-by-turn navigation that will be available on the company's newest iPhone, while Google has offered Google Navigation for some time, and the company's acquisition of Motorola Mobility gives it an additional advantage over Garmin.
As a result, we see better uses of capital when it comes to gaining exposure to the GPS and navigation market than investing in Garmin. It also appears that insiders fear that the company's ability to innovate might not keep pace with the rapid adoption of smartphones worldwide.