Global positioning companies (GPS) Garmin Ltd. (NASDAQ:GRMN) and Trimble Navigation Limited (NASDAQ:TRMB) have both seen their shares come under pressure this year. However, one is much better positioned than the other to succeed over the long term.
All the Rage
GPS systems receive signals from a collection of satellites and then triangulate the exact location of the receiving device. Through the wonders of modern technology that allows all sorts of good things to happen, from on the go directions to self steering farming equipment.
When the technology hit the consumer market it was an overnight success and Garmin Ltd. (NASDAQ:GRMN) was the clear leader. In five years, the company’s sales ballooned from around $500 million to nearly $3.5 billion. That 2008 peak, however, remains the high water mark.
More Competition
Lack of demand isn’t Garmin’s problem. The problem is that GPS systems are being integrated into more and more devices. Why buy a separate GPS unit when you can just use your iPhone’s built in system? The company has found some traction in niche markets, such as GPS gear for sports enthusiasts, but that hasn’t pushed the top line back into growth mode. Car based GPS devices still make up around half of the company’s business.
On that front, Garmin Ltd. (NASDAQ:GRMN) is working to get into the dashboard instead of being placed on top of it as a secondary purchase. That’s a good move, but it puts Garmin into a highly competitive industry space. Garmin has been returning value to shareholders via dividends and share repurchases, but what it really needs is to push sales higher again.
Garmin’s around 5% dividend yield might interest aggressive income investors and those seeking a turnaround. However, without a clear catalyst in sight that’s a high-risk wager. That said, with no debt on the balance sheet, Garmin Ltd. (NASDAQ:GRMN) has time to jump start its business again.
B to B
Although its sales aren’t as large, Trimble Navigation Limited (NASDAQ:TRMB) seems to have found a very profitable and growing niche for GPS technology. The company sells a collection of services and devices that allow businesses to use GPS to improve their operations. Key markets include agriculture, construction, engineering, and defense, among others.
Its products go well beyond simply putting a pin on a map and providing directions from point A to point B. For example, Trimble Navigation Limited (NASDAQ:TRMB) sells the systems that automatically steer farmers’ vehicles. Its products allow businesses to run more efficiently, safely, and produce more accurate outcomes. Those are big benefits that customers are gladly willing to pay for.
Trimble’s top line grew from a little over $500 million in 2003 to $1.3 billion in 2008. Not as impressive of a top-line advance as Garmin. However, after dipping during the 2007 to 2009 recession, sales started to grow again. The top line was over $2 billion last year. Unlike Garmin, Trimble Navigation Limited (NASDAQ:TRMB) has solid growth prospects despite the recent share price pullback.
Although Trimble shares are still trading near all-time highs, growth investors should view the pullback as a potential buying opportunity in a GPS specialist with a growing business.
