Garmin (GRMN)

Total return at 5 years: 4.1%/year = 2.3% appreciation + 1.8% dividend. The target price ($310) is ex-dividend; the $27 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $276 · Multiples $272) is below the market price ($277).

Today — expensive, no margin of safety: at $277 trades ~1.9% above its value discounted to today (~$272); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — En valor: the target price ($310) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$172.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($277) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The implied growth (8.1%/year) is in line with our base case (8.0%/year) → the price is consistent with the projection.

That growth implies ~$2.4 bn of owner earnings in year 5 (vs ~$2.4 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on EV/EBIT. In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

TTM re-based to Jun-27-2026 by levels: FY2025 (10-K, fiscal year closed Dec-27-2025) + 26-week cumulative through Jun-2026 minus the same cumulative period of the prior year, taken from the 8-K filed Jul-29-2026 (Item 2.02, second-quarter results announcement), because the EDGAR XBRL had not yet ingested that quarter as of this import's date (its most recent fact dated to Apr-29-2026). TTM revenue: US$7,671.4 million (+15.1% in FY2025, +20.4% in FY2024, a very strong trajectory); TTM operating income: US$2,118.1 million (27.6% margin); TTM net income: US$1,877.3 million (24.5% margin); TTM operating cash flow: US$1,978.9 million; TTM capex: US$379.1 million. Effective tax rate from XBRL: 17.4%. Year 1 starts from the company's own guidance for fiscal 2026 (raised in the same announcement), not from the historical trajectory: revenue of ~US$8.05 billion (+11.1% year over year over full FY2025), operating margin of 27.0%, pro forma earnings per share of US$10.00 (implied net margin ~24.0% over 193.5 million diluted shares), and a tax rate of 16.5%. That guidance is deliberately lower than the recent 15.1%-20.4% growth because it already incorporates the expected deceleration, so anchoring there avoids both extrapolating the recent peak and under-starting below what the company itself expects. From that year 1, the path decays smoothly and geometrically to a terminal growth rate of 7.0% in year 5 (base case) — a durable rate for a diversified branded hardware manufacturer across five markets, without assuming the Fitness segment's recent acceleration (+25% year over year in the second quarter of 2026) holds indefinitely. TTM capex (US$379 million) nearly doubles estimated depreciation and amortization (~US$196 million, annualized from the first-half 2026 cash flow statement), a sign of a company still in capacity-investment mode — hence the default Greenwald convention is used (maintenance capex ≈ 50% of total capex, practically equal to estimated D&A) rather than assuming maintenance capex equal to total capex. The exit multiple comes from the branded-devices archetype's band [14.0x, 19.0x] over owner earnings. The base case uses 17.0x (upper-mid position): TTM return on invested capital (NOPAT ~US$1,749.6 million over invested capital of US$6,570.1 million from the balance sheet) is ~26.6%, well above the 10% bar (exceptional-quality band, ≥20%), and the moat is wide (vertically integrated manufacturing across six countries, more than 2,100 patents, long-standing tier-one relationships in aviation and auto OEM) though without consolidated evidence that it is widening (it is classified as stable, not widening, for lack of a measured, opening unit-economics gap). The adverse case compresses to 15.0x (floor of the band) and stresses year 1 below guidance (7.0% versus the guided 11.0%); the favorable case expands to 19.0x (ceiling) with a year 1 above guidance (14.0%). With no financial debt (totalDebt = 0 on the balance sheet of the 10-Q as of Jun-2026) and roughly US$4.4 billion of cash and marketable securities: the common inputs use cajaStart=0/deuda=0/accumulateCash=false because the metric (owner earnings, unleveraged) already reflects funding, and the real net cash is added once, statically, in the EV-to-equity bridge (bridge.cashExcess), avoiding double counting with the year-model's ladder. Buybacks are immaterial to the share count (~0.6%/year, below the 1%/year threshold that would require modeling an explicit share path), so shares are held constant across the three scenarios.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $310 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $277, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $310 in 5 years plus $27 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $272. Against the current market price ($277), the margin of safety is -1.9% (trades above the maximum → a premium is paid) and the total return at that price would be 4.1% annually.

• Elevated entry multiple. The stock trades at 24× operating income, above the ceiling of the archetype's exit band (15× in the base case).
• Net cash visible in the price. Close to US$4.4 billion in cash and marketable securities with no debt to offset, already reflected in the market capitalization.
• Estimated total return. The base case projects an annual total return of +4% over five years, with +2% contributed by the dividend.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (92%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. 26.6% in the TTM, well above the 10% bar and with no financial leverage.
• Consistent cash generation. Positive operating cash flow over the trailing twelve months, funding the dividend, capex, and buybacks without resorting to debt.
• Capex above depreciation. TTM capex (~US$379 million) nearly doubles estimated depreciation and amortization, a sign of a company still in capacity-investment mode.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Drivers are shown by segment in revenue levels (not rates), from the FY2025 10-K's MD&A and the 8-K filed July 29, 2026, for the most recent quarter. Fitness is the largest and fastest-growing segment; auto OEM, the smallest and the one that weighed on consolidated operating results for years, only just showed marginal operating profit in the second quarter of 2026. The filing does not report explicit volume-by-price drivers at the segment level, so reported revenue levels are used directly.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (27-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Fitness as the near-sole engine. The Fitness segment accounted for most of consolidated growth in the second quarter of 2026 (+25% year over year).
• Outdoor contracting. The Outdoor segment fell 2% year over year in the second quarter of 2026, weighed down by consumer auto and adventure watch categories.
• 2026 guidance implies deceleration. Raised revenue guidance (~US$8.05 billion) implies ~11% year-over-year growth, below the company's recent pace.

• Segment diversification. Five markets with distinct dynamics (Fitness, Outdoor, aviation, marine, auto OEM); none exceeds 33% of FY2025 revenue.
• Vertically integrated manufacturing. Company-owned plants in six countries share capacity between high- and low-volume products, with industry-specific quality certifications.
• Auto OEM still subscale. The segment only just crossed into marginal operating profit (US$2.9 million) in the second quarter of 2026 after years of losses.
• Limited revenue recurrence. The subscription business (Connect+, Outdoor Maps+, Garmin Golf) is still early-stage against the dominant weight of hardware sales.

• ✓Leverage (net debt / EBITDA)Net cash $2.7 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 92% of ROIC
• ✓Value creation (ROIC − 10% bar)+17pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.9x
• !Float / working capitalConsumes cash $0.2 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 2.3% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• No financial debt. The balance sheet carries no short- or long-term debt at the close of the second quarter of 2026.
• Cash and marketable securities. Close to US$4.4 billion in current and non-current cash and marketable securities at period end.
• Dividend comfortably covered. The US$4.20 per share payment for 2026 represents close to 43% of TTM earnings per share.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Internal continuity. The CEO joined as a software engineer in 1989 and rose internally to the presidency; more than 35 years at the company.
• Moderate CEO skin in the game. Clifton Pemble owns 62,150 shares, under 1% of the company, despite his tenure and executive role.
• Founding-family ownership. Co-founder Min Kao holds 9.7% ownership as Executive Chairman of the board, a long-term alignment uncommon in a company this size.

• No clear source of missing buyers or motivated sellers is identified: Garmin has broad analyst coverage, is not undergoing a spin-off, does not trade outside its natural market, and its second-quarter 2026 results were record results with raised guidance — the typical perception-versus-reality gap that underpins a value opportunity is not present.
• The stock's re-rating in recent years — from a high single-digit multiple to 24× today — reflects the reacceleration of the Fitness (wearables) segment and the improvement in auto OEM, already known and well received by the market following the July 29, 2026 release.
• Reported free cash flow is not depressed by hidden growth capex that the market is ignoring: the company discloses and guides it explicitly, and the debt-free balance sheet is equally visible on any data screen.

It trades close to intrinsic value, far from the required margin of safety. At current prices, the entry multiple (24× operating income) exceeds the ceiling of the branded-device archetype's band (up to 15× in the base case), so much of the business's quality — wide moat, net cash, return on capital of 26.6% — is already recognized in the price. This is consistent with the stock not being particularly cheap, rather than a classic value opportunity.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-22% total): the margin of safety protects the downside. The bull (+9%/year, +56% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Concentration in Taiwan. The main consumer-product manufacturing plants are in Taiwan, exposed to geopolitical risk.
• Single-source suppliers. Semiconductors, displays, and batteries partly depend on limited suppliers, with a history of shortages.
• Unhedged foreign-exchange exposure. The company does not use financial instruments to hedge its exposure to currencies other than the dollar.
• Dependence on the Fitness product cycle. Recent growth relies heavily on new wearable launches; weaker execution would slow the main growth engine.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 27% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 8% at a multiple/growth of 3.0 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 4% (EBIT/EV) + ROIC 27% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 8%, in line with our 8%: perception and reality aligned.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +8%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: intangibles, efficient scale, cost advantage, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 8%, within what we project (8%) — the story squares with the numbers.