Why Garmin Stock Just Dropped 6.1%

Garmin (GRMN -5.63%) the stock was down 6.1% by 11:45 a.m. ET Friday, after the investment bank Barclays downgraded shares of the GPS guidance specialist from equal weight (i.e., hold) to underweight (i.e., sell) and cut their price target to $133 from a previous $181.

With its stock up 72% over the past 52 weeks, Garmin has outperformed the S&P 500 by a factor of nearly three. According to Barclays, this was an overperformance, the stock is now “overextended” and it’s time to take profits.

Why Barclays Doesn’t Like Garmin

Garmin grew sales 14% in the latest quarter, but profits rose just 4%, a weak result that Barclays interprets as “the underlying consumer hardware spending environment remains muted.” In worse news for shareholders, the analyst believes that some Garmin sales that would have occurred in the second half of 2024 have been pulled into the first half of the year, implying that sales growth for the rest of the year will be lower.

In addition, Barclays warns of a “negative change in mix” that could hurt profits even more than sales. The banker anticipates that Garmin will sell relatively fewer high-margin aviation products in the second half of this year than in the first half and more low-margin automotive products, resulting in weaker gross profit margins.

All things considered, Barclays expects Garmin to earn $6.05 per share in 2024. Suggesting that a valuation of 22 times earnings would be appropriate for the stock, Barclays lowered its price target for Garmin to $133. That implies a drop of up to 22% over the next 12 months after Friday morning’s low.

Is Garmin stock a sell-off?

Garmin is now valued at 25.5 times both earnings and free cash flow, and most analysts agree it likely won’t grow earnings faster than 10% annually over the next five years — giving it a PEG ratio of 2.5 and a price of 2.5. also the free-cash-flow ratio. And if Barclays is right that its profit margins will shrink, the stock is even more expensive.

Time to sell Garmin stock.