Better Buy: GoPro Inc. vs. Garmin
GoPro (NASDAQ: GPRO) and Garmin (NASDAQ: GRMN) both own valuable brands in their respective industries. GoPro is synonymous with action cameras, while Garmin is the leader in GPS-enabled devices.
But while investors have sent GoPro's stock far lower since its IPO, they're gaining confidence in Garmin's ability to consistently churn out steady sales and profit growth.
With that in mind, let's look at how the two companies stack up against each other as investment candidates.
Garmin vs. GoPro stocks
Recent operating performance
GoPro is growing at a faster pace today. Sales last quarter jumped 19% thanks to solid demand for both its Hero lineup of cameras and the recently launched Karma drone. Compare that to Garmin's 2% uptick in the fiscal first quarter it closed in May.
However, zoom out and you'll see sharp volatility in GoPro's results versus the GPS device specialist. Just within the past few years its quarterly sales have been up over 60% and down by nearly 50%. Garmin's comparable figure has tracked much closer to steady gains in the low-single-digit range.
The above chart highlights a key risk to GoPro's business that isn't as pronounced for Garmin. The camera specialist derives essentially all its revenue from just a few products, whereas Garmin's portfolio spans diverse segments including wearable fitness and marine GPS instruments, which can cushion the blow from demand stumbles in other device lines.
Garmin is a much more profitable business despite that slower growth pace. Gross profit margin jumped nearly 4 full percentage points last quarter to 58% of sales as GoPro's profitability fell to 31%. The difference in the two companies' earnings trends couldn't be more pronounced. Garmin's net income is positive and climbing while GoPro's is negative and declining.
GoPro CEO Nicholas Woodman and his executive team sound confident about their rebound prospects for the rest of the year. They're forecasting $270 million of revenue in the fiscal second quarter, which would mark a 22% boost over the prior year's numbers.
Keep in mind, though, that the year-ago revenue figure was a huge disappointment given that sales collapsed by nearly 50%. That means even if it achieves management's current forecast, revenue will still be 36% below the mark set in 2015. As for earnings, GoPro doesn't plan to return to GAAP profitability until next year at the earliest.
On the other hand, Garmin is on track for a slight uptick in 2017 sales and a healthy expansion in profitability. The GPS device maker also pays a hefty dividend that yields close to 4% and is well covered by earnings.
Given the wide gap in operating and financial metrics, there aren't many good reasons to prefer a GoPro investment over Garmin today. Investors who don't mind risky stocks might want exposure to the camera specialist in hopes that its newest lineup of products sparks unusually strong demand, but the less volatile, less dramatic, and more profitable buy is likely to be Garmin.
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Demitrios Kalogeropoulos has no position in any stocks mentioned. The Motley Fool owns shares of and recommends GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool has a disclosure policy.