Garmin Lost Without GPS Biz

Cramer on Thursday’s show offered a maxim that every investor should follow: Never own a company whose main business is on life support. Shareholders of Garmin especially should take this to heart.

You probably know Garmin as the maker of global-positioning-system devices, from which the company earns 73% of its sales. This was a great business five years ago, when Garmin’s earnings grew at a rate of 52% and 64% annually between 2005 and 2007, but that’s no longer the case. Free smartphone applications are chewing up the GPS business and killing Garmin’s main profit line in the process.

Anybody who wonders about the future for GPS should consider PDAs, or personal digital assistants, Cramer said. They, too, fell into obscurity when smartphones came along. After all, why carry two devices when one does it all?

Some people may argue that MP3 players still sell despite the influx of high-end handsets, but remember that the Apple iPod and similar devices hold more songs than a smartphone, which makes them more viable. The same goes for cameras. Sure, plenty of phones have them these days, but they are not sophisticated digital devices like those you might get from, say, Canon.

Cramer did some math and figured that Garmin, when you subtract the dying GPS division, is left with just $1.20 earnings a share (the rest comes from the marine, aviation and outdoor fitness businesses). Give the stock a median consumer tech multiple of 14, add in the $9 of cash per share and GRMN should be worth about $26, or 20% lower than its present level.

That’s the fundamental picture, and the technical case isn’t much better. Cramer said the chart is showing that professional money managers are dumping Garmin.

Given these factors, it isn’t hard to guess Cramer’s bottom line:

“The long-term story [is] unacceptable to me,” he said. “Garmin – it’s a sell, sell, sell.”

Cramer’s charitable trust owns Apple.

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