Stock pick: GPS maker Garmin Ltd. has something else up its sleeve

Another wearable tech play

Trailing 12-month stock performance of Garmin Ltd.

When most people think of Garmin (NASDAQ: GRMN), they think of handheld GPS devices. At one time its mapping gadgets got nearly every one from point A to point B, but the more people started using free apps such as Google Maps on their smartphones the less of these products it sold. In Q4 2013, sales of the company’s personal navigation devices fell 12% to $383 million or about 50% of total quarterly revenues.

Despite its core product falling out of favour with buyers, the company is still raking it in. It made $2.8 billion in fiscal year 2013—up 4% from the year before. How is it making money if navigation devices aren’t flying off the shelves? What most people don’t realize is that the company sells far more than just traditional GPS devices.

These days Garmin sells everything from cameras and fishing-related sonar devices to watches that bring up golf courses and touch-screen flight decks for airplanes. But it’s the company’s next line of products that has analysts excited.

In January, Garmin jumped into the wearable technology space with its Vívofit armband. The device tracks every move someone makes and can quickly tell you how many calories you’ve burned, how many steps you’ve taken, how much you’re sleeping and much more.

For Jeremy David, an analyst a Citigroup, its foray into this space is so promising that, on March 25, he upgraded the stock to a buy rating and raised his 12-month price target from $50 to $65.

While part of the reason for the upgrade was the company’s strong Q4 numbers, he thinks it can become one of the top two players in the wearable technology space over the next six months. Its Vívofit device is the only wrist-based activity monitor with a one-year battery life, he writes, and its $150 price tag is “reasonable.”

David adds that the wearable technology market is a billion-dollar industry, so even if it nabs a portion of that, Garmin make a lot of money. He thinks the company will ship 1.3 million activity monitors in 2014 and 2.65 million in 2015. That should account for 38% of revenues of the company’s fitness business this year, he writes.

If all of this plays out the way he and other analysts expect, then the stock’s price could climb significantly higher. According to S&P Capital IQ, the company’s earnings per share will jump by 15% between now and 2016. It’s currently trading at $55 a share, but the median 12-month price target is $61 with some analysts thinking it could get as high as $71.