Consumer

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

On Wall Street, just like in the music industry, one-hit wonders eventually drop off the charts. Take Fitbit and GoPro: Shares of both companies enjoyed meteoric rises before declining as growth prospects for their products waned. On Wednesday, Garmin -- which competes with both -- showed them why diversification pays. 

War of Wearables
Shares of the larger, more-diversified Garmin have outperformed its smaller rivals.
Source: Bloomberg
*Timeframe is since Fitbit's IPO

Shares of the $7.8 billion maker of GPS-enabled devices soared as much as 19.1 percent after Garmin managed to deliver better-than-expected earnings despite narrowing margins. It also provided a timely reminder: Unlike its newer rivals and since its 2000 initial public offering, the company has never been beholden to one single product or group of customers.

As Garmin's automotive-focused products have increasingly fallen out of favor with drivers who turned to free navigation apps on their smartphones (revenue at the segment dropped 15 percent in 2015), growth has instead come from the company's marine, aviation, fitness and outdoor divisions. These segments sell devices used by boaters, fishermen, runners, cyclists, hikers and aircraft pilots, among others. 

The company benefited from introducing "Elevate" wrist-based heart-rate technology products among others, and an ongoing rollout of new devices is expected to drive revenue growth in calendar 2016. Already this year, Garmin has revealed new golf products and motorcycle navigators, and plans to develop new offerings following the purchase of PulsedLight, which makes sensor boards. It has also agreed to acquire two-way satellite-communication device maker Delorme

Also noteworthy: Garmin has moved its action-camera arm -- where sales fell by 21 percent from a year earlier -- into its slow-growing auto segment and out of its outdoor division. That may reflect a dimming view of the action-camera market's limits, a signal that in turn could bode poorly for GoPro. Sales from Garmin's auto segment are expected to again fall 15 percent in 2016, offset by growth of between 5 to 10 percent across other parts of Garmin's business. Meanwhile, margins for fitness products are being squeezed by currency fluctuations and increasing competition, especially among activity trackers, which isn't great news for Fitbit. 

Staying Nimble
Garmin's ability to add products and grow segments as others flounder has been key.
Source: Company presentations, filings

Fears that Garmin's own fitness business may slow drove its stock down 38 percent in the 12 months ended Tuesday, and prompted some investors to bet against it. The company's short interest as a percentage of free float was 10.2 percent, compared to 132.9 percent for Fitbit and 15.6 percent for GoPro, according to data compiled by Markit. Wednesday's earnings beat left some of these short sellers scrambling. 

With no debt on its balance sheet, $2.4 billion of cash and marketable securities earmarked for "tuck-in" acquisitions, a steady stream of dividend payments and share buybacks, the company has marked itself a clear path. With its shares now trading at roughly 18 times forward earnings, their highest level since December 2014 and a touch above the consensus analyst target price, it appears more shareholders are becoming convinced that Garmin will find its way. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net