Published: November 29, 2007

Garmin (Nasdaq: GRMN, $107.95) is one of the world's leading suppliers of global positioning system (GPS) devices.

Years ago, anyone who peeked into the flight deck of an aircraft typically found sophisticated GPS tracking and other indispensable navigation equipment on board. Today, the same technology that keeps pilots on track can be found almost anywhere: automobiles, sailboats, recreational vehicles -- even cell phones.

GPS technology, which relies on satellites to relay precise positioning data, has evolved considerably in recent years -- and has also become much more affordable to everyday consumers. Those who use GPS devices can pinpoint their exact location anywhere in the world, often to within a few inches.

While this technology might seem to be a novelty, the real world applications are almost endless -- just ask a lost hunter wandering aimlessly in the remote wilderness or a sailor trying to find the closest port in a storm.

According to Morningstar, the market for personal navigation devices (PNDs) is expected to triple over the next five years. And as the market leader, much of this business will accrue to Garmin. The firm controls roughly 50% of the PND market in the U.S. and has a growing presence in Europe as well, with a worldwide network of 3,000 dealers in more than 100 countries.

Garmin's products are broadly grouped into four different categories: outdoor/fitness, marine, auto, and aviation. By far the most important of those is the auto sector, which accounts for about 70% of the company's revenues and over 60% of its operating income.

For those who haven't driven a vehicle equipped with a navigation system, these high-tech devices have made fold-up maps a thing of the past. Garmin's systems can provide precise turn-by-turn directions to almost any destination, and users can follow their progress on a moving map -- but that's just the beginning. With millions of pre-loaded points of interest, these systems can also provide routes to the nearest ATM machine, the closest gas station, or a nearby Italian restaurant -- and can even steer you around traffic tie-ups.

In-dash navigation systems are catching on quickly with many drivers and automakers. And as you might expect, this has led to impressive sales growth. In fact, revenues in Garmin's auto segment totaled $1.3 billion through the first nine months of the year -- a dramatic +109% increase over 2006. Meanwhile, those in the firm's other divisions are up briskly as well, pushing overall sales for the year up +69% to $2.0 billion.

Over the past three months alone, Garmin has shipped 2.7 million units and generated $117 million in free cash flow, pushing the firm's cash balance past the $1.0 billion mark.

Looking ahead, new markets in Asia could be key growth drivers; sales in this region spiked more than +100% last quarter. Software for wireless devices, like Palm's Treo, and other smart phones could be another bright spot, as many vendors are reporting surging demand for GPS-equipped mobile phones.

For the full-year, Garmin is expecting to ship more than 10 million units, and management is forecasting revenue growth of +90% in its key auto segment. Of course, the firm's sizzling growth has not gone unnoticed, and investors have bid up the shares +77% year-to-date -- on top of a +69% gain in 2006.

However, after peaking at $125 in late-October, the shares were tripped up by recent market weakness, at one point retreating all the way back to $84 -- more in line with my fair value estimate of $76 per share.

Like any company, Garmin does have risks -- such as the threat that increased competition could erode profit margins. Nevertheless, this is a powerful player in a rapidly growing industry, and I would be happy to buy the shares if they dip back below my fair value estimate. For now, I plan to keep an eye on the company's progress during this pivotal holiday shopping season.

Nathan Slaughter
Editor
Half-Priced Stocks

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Nathan Slaughter has developed a long and successful track record over the years by investing primarily in deeply discounted securities. He uses advanced discounted cash flow techniques, along with a host of fundamental research, to uncover quality stocks that are trading well below their actual intrinsic value.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors, where he provided comprehensive investment advisory services to small businesses and high net-worth clients. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print publications, and he now writes exclusively for StreetAuthority.com.

Nathan's educational background includes NASD series 6, 7, 63, & 65 certifications, as well as a degree in Finance/Investment Management. He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley. 

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