GPS device maker Garmin (Nasdaq:GRMN) is just as lost as ever.

In November, the company was part of a bidding war with rival TomTom as both sought to acquire Tele Atlas, a provider of digital mapmaking data. Garmin has since abandoned its pursuit of Tele Atlas and decided to go it alone. TomTom gets the prize, and I think this leaves Garmin in a lousy position. The stock could drop significantly before it finds a bottom.

When You Control Information...
TomTom will now have control of all Tele Atlas's data assuming the deal goes through. The reason that both parties wanted Tele Atlas was in part to ensure that Nokia (NYSE:NOK) wouldn't obtain a stranglehold on the market given its pending purchase of Navteq (NYSE:NVT), another major player in digital mapmaking. If both acquisitions go though, Garmin could be in real trouble. It has a deal to get its data from Navteq until 2015, beyond that is a question mark. Nokia and TomTom could team up to cut off Garmin's supply of digital maps.

There are some other things that concern me as well. If you've been to Best Buy (NYSE:BBY), Circuit City (NYSE:CC) or any other major discount retailers during the holiday, you'll note they all sell GPS devices and at sickeningly low prices compared to last year. These gadgets are becoming commoditized, and I think this might hurt earnings both in the current quarter and going forward.

Market share is also a concern. On December 19, Reuters reported that NPD market researchers determined that Garmin's domestic market share in terms of units sold in November dropped to 29.3% from 47% in October. That's a huge drop. Meanwhile, TomTom accounted for 30.6% of the market. It's important to note that these numbers are fluid; they vary month-to-month based upon promotional activities, new product releases, etc. However, I don't like the trend. I think this news came at a lousy time given that it just lost out on its bid for TeleAtlas.

Another concern is that although the stock is more than 20% off its 52-week high insiders seem to be bailing. Now, there are lots of reasons why insiders might sell their stock, to buy a new home, for tax reasons or to send their kids to school, etc., but why are they selling now, especially with the shares under $100? In short, if they truly felt comfortable with their company's position in the industry, wouldn't they be buying? This could perhaps be a bad omen. (For both sides of the insider selling debate, see Insider Selling Isn't Always A Bad Sign.)

Bottom Line
Garmin is not expected to make any further moves for Tele Atlas. Some think that this is a good move because at least the company won't end up paying an obscene amount of money for a relatively small company, but I think it's a negative. It gives TomTom and Nokia a major say on the sale of map making data, and I think this could eventually come back to bite Garmin.

Other problems surround Garmin, including a drop market share, the increasing commoditization of the GPS device, and insider selling. There could be even more downside for the company heading into the new year. I think it makes sense to steer clear of the stock.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
Trading Center