Is It Time to Buy Garmin Ltd. Stock?

Investors in Garmin have had a decent 2014. Year-to-date, shares are up better than 21%, outperforming the broader market. Despite a contraction in the company's core GPS business, its "other" segments have enjoyed impressive growth. In particular, strong demand for Garmin's wearable fitness gadgets, in particular, has helped the company reward its shareholders.

What is no doubt investors minds after Garmin's recent rally, is can it be too late to buy Garmin stock? There are certainly reasons to like Garmin even after its 2014 run-up, but the competitive landscape is intensifying. Let's take a closer look at Garmin and see if the shares might make a Foolish investment going into 2015.

Far from a bargainFrom a purely valuation perspective, Garmin isn't particularly cheap, but it isn't terribly expensive, either. Garmin's price-to-earnings ratio currently sits around 18, which is in line with the broader market, but a bit unusual for a company whose core business is in decline.

Of Garmin's five business segments, its automotive/personal navigator unit is by far the largest. Sales of its GPS devices generate more than 43% of Garmin's revenue, and more than 35% of its gross profit. As one might expect, sales have been in decline, as smartphone adoption steadily weighs on the market for dedicated GPS devices. Last quarter, its GPS business saw its sales fall 5% on an annual basis.

A promising wearables businessBut Garmin's other segments are growing. In particular, demand for its wearable fitness gadgets, which include the recently released Vivosmart, has skyrocketed -- sales rose a massive 43% on an annual basis last quarter.

The rapid gains in this segment may entice investors to overlook its declining GPS unit. Its wearable fitness business is certainly attractive, with healthy gross margins -- 64% last quarter, up from 61% in the same quarter last year.

But competitive threats could put pressure on this business in the near future. In particular, the Apple Watch, set to make its debut early next year, could pose a significant threat. Apple hasn't revealed everything about the device, but has announced that it will feature, among other things, a heart rate monitor and built-in activity tracker.

Garmin's wearables have several advantages over the Apple Watch. Owners of Android- and Windows Phone-powered devices, for example, will find the Apple Watch useless, as it requires a paired iPhone to function. But there are other alternatives to Garmin's gadgets, including the recently released Microsoft Band and a growing number of Android Wear smartwatches.

Too many challengesSince the introduction of the iPhone, Garmin bears have argued that the company's future is bleak. Even low-end smartphones now feature powerful navigation software, calling into question the viability of its business. Yet Garmin has remained resilient, generating substantial cash, much of which it has returned to shareholders.

With nearly one-third of its market cap in cash and cash equivalents, a management team that has favored capital returns, and a rapidly growing wearables business, Garmin may appear an attractive investment. Still, I think investors could do better elsewhere.

Although Garmin's wearables could continue their rapid growth, the Apple Watch will be a far more formidable competitor than anything Garmin's devices have faced to date. The interest Microsoft, Samsung, and other tech giants have shown in this space also makes the odds of continued, 40%+ annual growth low.

Its automotive/personal navigator unit has experienced only modest annual declines, but the speed at which that business unravels could soon accelerate. Starting next year, many new cars will sport CarPlay, Android Auto, or a combination of the two. Those software interfaces, designed by Apple and Google, respectively, will elevate smartphone-based navigation to a level previously unseen, projecting smartphone-based maps onto car dashboards.

Foolish final wordGarmin could continue to defy its challengers and reward shareholders. Competing devices such as the Apple Watch are unproven, while demand for Garmin's products is well-established. But given its present valuation, it may not be worth the risk for long term Foolish investors.

The article Is It Time to Buy Garmin Ltd. Stock? originally appeared on Fool.com.

Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.