Garmin's Stock Plummets Amid Mixed Signals: Growth Versus Caution

Garmin (GRMN) shares fell over 5% in premarket trading Wednesday after reporting a first-quarter 2025 earnings beat on revenue but a miss on its pro forma EPS guidance. While the company celebrated record sales growth across key segments—particularly in outdoor and fitness wearables—the cautious outlook for the full year and margin pressures have left investors skeptical.

Ask Aime: "Garmin's Q1 Earnings Beat, But Investors Wary Over Full-Year Outlook"

The drop underscores a familiar Wall Street dilemma: How to value a company with robust top-line growth but lingering macroeconomic risks? Let’s break down the numbers.

Record Revenue, But Not Enough for Bulls

Garmin reported $1.54 billion in Q1 revenue, a 11% year-over-year jump, easily topping estimates. Growth was driven by its outdoor and fitness divisions, which saw 20% and 12% revenue increases, respectively. The outdoor segment, fueled by advanced adventure watches like the Instinct 3 and GPS handhelds with satellite SOS features, now represents nearly 29% of total revenue—up from 25% a year ago.

Ask Aime: "Garmin's Q1 beat, but cautious outlook concerns investors."

The fitness division, meanwhile, benefited from the launch of the vívoactive 6 smartwatch and a new AI-powered subscription service, Garmin Connect+, which promises to boost recurring revenue. Yet even these positives couldn’t offset broader concerns.

The EPS Miss and the Bear Case

While GAAP EPS rose 20% to $1.72, the pro forma EPS of $1.61 fell short of the $1.64 consensus. The miss stemmed from higher tax rates (16.5% projected for 2025 vs. 14.5% in Q1) and R&D investments, particularly in the Auto OEM segment, which reported a $9 million operating loss despite 31% revenue growth.

CEO Cliff Pemble cited geopolitical risks—including tariffs and supply chain uncertainties—as reasons for cautious full-year guidance. The company maintained its $7.80 EPS target for 2025, which is 12 cents below Wall Street expectations. Analysts are now questioning whether garmin can sustain its growth trajectory in a volatile market.

Segment Risks and Strategic Wins

• Marine division struggles: Revenue dropped 2% due to delayed promotions, though new products like the Force Pro trolling motor and Approach G20 golf GPS aim to turn the tide.
• Aviation and awards: Garmin’s aviation tech, chosen for Pilatus aircraft and recognized as a top supplier, remains a steady revenue source.
• AI and subscriptions: Garmin Connect+ could be a key growth lever. If adopted widely, it could reduce reliance on hardware sales and improve margins.

The Bottom Line: A Stock at a Crossroads

Garmin’s $3.9 billion cash hoard and strong free cash flow ($381 million in Q1) provide a safety net, but investors are now betting on whether the company can navigate macro risks. The stock’s drop suggests skepticism about its ability to hit even its conservative targets.

The company’s dividend yield of 2.1% and remaining $210 million in buybacks offer some comfort, but the real test lies ahead. If Garmin can grow its fitness and outdoor segments while stabilizing marine and auto margins, the stock could rebound. However, with global trade tensions lingering, the path to sustained EPS growth remains unclear.

Final Take: Garmin’s Q1 report highlights a classic growth story with a caveat: execution in uncertain times. Investors will need to decide whether the stock’s current dip—driven by cautious guidance—is a buying opportunity or a sign of deeper challenges. For now, the market has spoken: until margins and EPS stabilize, Garmin’s rally remains on hold.