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Tickers in this Article: GRMN, NOK, BBY, CC, NVT
On Monday of this week, Nokia (NYSE:NOK) announced it had plans to acquire purchase digital map-maker, Navteq (NYSE:NVT). The news sent the stock of navigation-equipment maker Garmin (Nasdaq:GRMN) into a tailspin, plunging more than 10% for the day.

Why? Garmin buys map data from Navteq, and there are fears new owner Nokia might raise the price. (To learn more about the move, see the Forbes article by Ruthie Ackerman "Nokia's Gain Is Garmin's Loss".)

But frankly, I think the Nokia issue is just the tip of the iceberg. There are a host of other reasons why Garmin could be in trouble going forward.

Competition is Garmin's Real Problem
If you walk into your local Best Buy (NYSE:BBY) or Circuit City (NYSE:CC) you'll notice that both companies sell a host of cool navigation products made by competitors to Garmin such as LG and Magellan. The other big-name retailers such as Wal-Mart, Target and Staples have jumped into the game too, and are they're all discounting their wares heavily to drive foot traffic.

Competition is increasing in the personal navigation market. Products made by lesser-known companies, such as Mio and TomTom, for example are becoming increasingly popular. Finally, keep in mind the potential competition down the road from cell phones. While it is by no means imminent, it is possible that just about every phone could have some sort of GPS navigator built in to it.

Overall, I see the potential for a lot of pressure to be put on Garmin's current competitive advantage. (For more insight, see Competitive Advantage Counts.)

More Problems Down the Road
While the company is coming off a strong second quarter, it currently trades at about 30-times the current year's earnings estimate of $3.36 per share, and at more than 25-times the current 2008 estimate of $3.95 per share. Frankly, that's a little too rich for my blood. (To learn more, check out our P/E Ratio Tutorial.)

Garmin has enjoyed an meteoric rise, but its popularity can cut both ways. I think the investment community has come to expect blowout quarters from the company, and any disappointment could lead to a pretty big pummeling for the stock. If the recent downturn for the stock continues, I worry that there could be some tax-loss selling issues near year end too. The downward momentum could continue.


The Bottom Line

To be fair Garmin is still an industry leader and has been for quite some time. Although I like Garmin, and it has proved itself over time, I think that, given the above-mentioned concerns, it makes sense to steer clear of the stock for the time being.

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