Insights

1 Under-the-Radar Growth Stock to Buy and Hold

With the expectation of rising interest rates, a surge in inflation, and other uncertainties, investors have shifted away from growth stocks in 2022. But not every growth stock is the same, and there are growing businesses that will navigate the current economic environment successfully. 
One such business is unique in that it isn’t a high-flying tech stock, so while the business remains in growth mode, the stock itself also has the traits of a value investment. This under-the-radar company is GPS device maker Garmin (NYSE: GRMN). 

Image source: Garmin.

Value amid growth
Outdoor recreation has exploded in popularity during the pandemic, helping the company grow 2021 revenue 19%. But the company isn’t just benefiting from a pandemic-fueled boost. Over the past five years, Garmin has grown revenue at a compound annual rate of 10.5%.

Garmin has grown revenue at almost an 11% annual rate for the past five years.

That hasn’t yet caught the attention of many investors, and the stock is trading at a forward price-to-earnings (P/E) ratio of 18.5. That is the lowest level since the broad market sell-off at the start of the pandemic. And this valuation doesn’t even take into account the fact the company holds $1.8 billion in cash and equivalents, or about 9% of its market cap, making its valuation even more attractive. 
What’s driving growth
Of course, investors don’t want to invest in a value trap, either. The company must sustain its growth for the investment to do well over the long term. But that seems likely, considering what’s been driving Garmin’s results.
Once known for its automotive GPS units, the company pivoted its business so the fitness, outdoor, aviation, and marine segments took center stage. In fiscal 2009, the automotive segment accounted for 70% of total revenue, and as recently as fiscal 2015, it still made up 38% the business. But last year, fitness and outdoor products made up 57% of sales combined, while automotive had dwindled to 12%.

Data source: Garmin financial releases. Chart by author.

Technology focused
Garmin generates a tremendous amount of cash from its business. That explains its strong cash position, but the company also reinvests that cash to ensure its products remain popular with outdoor enthusiasts. Its spending for research and development (R&D) has grown even faster than its revenue. 

Garmin has increased R&D spending at an annual rate of 11.4% since 2014.

Garmin now expects sales to rise another 10% in fiscal 2022. While that rate doesn’t put it in the same category as many technology growth stocks, its strong track record and attractive pricing offer investors an opportunity to own a value stock that’s still in growth mode.
Howard Smith owns Garmin. The Motley Fool owns and recommends Garmin. The Motley Fool has a disclosure policy. –

With the expectation of rising interest rates, a surge in inflation, and other uncertainties, investors have shifted away from growth stocks in 2022. But not every growth stock is the same, and there are growing businesses that will navigate the current economic environment successfully. 

One such business is unique in that it isn’t a high-flying tech stock, so while the business remains in growth mode, the stock itself also has the traits of a value investment. This under-the-radar company is GPS device maker Garmin (NYSE: GRMN)

Image source: Garmin.

Value amid growth

Outdoor recreation has exploded in popularity during the pandemic, helping the company grow 2021 revenue 19%. But the company isn’t just benefiting from a pandemic-fueled boost. Over the past five years, Garmin has grown revenue at a compound annual rate of 10.5%.

Garmin has grown revenue at almost an 11% annual rate for the past five years.

That hasn’t yet caught the attention of many investors, and the stock is trading at a forward price-to-earnings (P/E) ratio of 18.5. That is the lowest level since the broad market sell-off at the start of the pandemic. And this valuation doesn’t even take into account the fact the company holds $1.8 billion in cash and equivalents, or about 9% of its market cap, making its valuation even more attractive. 

What’s driving growth

Of course, investors don’t want to invest in a value trap, either. The company must sustain its growth for the investment to do well over the long term. But that seems likely, considering what’s been driving Garmin’s results.

Once known for its automotive GPS units, the company pivoted its business so the fitness, outdoor, aviation, and marine segments took center stage. In fiscal 2009, the automotive segment accounted for 70% of total revenue, and as recently as fiscal 2015, it still made up 38% the business. But last year, fitness and outdoor products made up 57% of sales combined, while automotive had dwindled to 12%.

Data source: Garmin financial releases. Chart by author.

Technology focused

Garmin generates a tremendous amount of cash from its business. That explains its strong cash position, but the company also reinvests that cash to ensure its products remain popular with outdoor enthusiasts. Its spending for research and development (R&D) has grown even faster than its revenue. 

Garmin has increased R&D spending at an annual rate of 11.4% since 2014.

Garmin now expects sales to rise another 10% in fiscal 2022. While that rate doesn’t put it in the same category as many technology growth stocks, its strong track record and attractive pricing offer investors an opportunity to own a value stock that’s still in growth mode.

Howard Smith owns Garmin. The Motley Fool owns and recommends Garmin. The Motley Fool has a disclosure policy.

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