Key Points

Garmin raised full-year revenue guidance after a record first quarter. Investors may be focusing on an expected dip in profit margin. Garmin has built a robust cash position that represents 11% of its market cap.

Garmin(NYSE: GRMN) this morning reported record first-quarter revenue that jumped 11% year over year. Bottom-line profits grew even faster at 13%. The maker of GPS-enabled devices even boosted revenue guidance for the year.

So investors might be wondering why the stock plunged by as much as 12.6% Wednesday morning. While it recovered some of that drop, Garmin shares were still down by 9% as of 3:15 p.m. ET.

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Positive business trends, but tariffs loom

Garmin had a strong quarter by most accounts. Revenue beat consensus estimates and the new guidance exceeds current analyst expectations for full-year revenue. Management noted "a continuation of the positive business trends" it's been experiencing over the longer term. But it didn't raise net income guidance due to an expected slide in profit margin. That's due to a current assumption of $100 million of increased costs due to tariff impacts.

While the tariff situation is fluid, Garmin management is taking a conservative approach for investors. Its assumptions are based on "tariff structures that are most likely to impact Garmin," CEO Cliff Pemble said on the earnings call.

About 25% of Garmin's sales in the U.S. are generated from products manufactured outside the country, mostly at its Taiwan facilities. While it is currently benefiting from temporary tariff exemptions, guidance is not based on those exemptions remaining. That could lead to potential upside should existing exemptions be made permanent.

Today's drop has the stock down almost 15% in the last month. It also means shares are trading at a price-to-earnings (P/E) ratio of about 23.5 based on 2025 earnings estimates. That's below the average of the past year of about 26.

As mentioned, Garmin's business remains strong. It achieved double-digit year-over-year sales growth in three of its five segments. That's after a very strong 2024 when revenue soared by 20% overall.

The company has no debt and a strong cash position that represents about 11% of its market cap. It easily covered its dividend payment with free cash flow in the first quarter. Today's drop looks like a good opportunity for buy-and-hold investors.

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Howard Smith has positions in Garmin. The Motley Fool has positions in and recommends Garmin. The Motley Fool has a disclosure policy.

Why Investors Are Running From Garmin Stock Today was originally published by The Motley Fool

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