Why Is Garmin Stock Dropping Despite Strong Earnings?

Garmin (NYSE: GRMN) is back in focus but not for the reasons investors might expect. The GPS technology company just posted a strong Q2 earnings beat and raised full-year guidance, yet its shares have dropped roughly 5% over the past week. What’s going on? In short: it’s not the business—it’s the technicals. After rallying nearly 30% since April, Garmin entered overbought territory, prompting traders to lock in gains. Add concerns about a potential second-half slowdown, and sentiment took a hit despite strong fundamentals. That said, if you want upside with a smoother ride than an individual stock, consider the High Quality portfolio, which has outperformed the S&P and clocked >91% returns since inception.

Garmin develops and sells GPS-enabled hardware and software across five key verticals: fitness, outdoor, aviation, marine, and automotive OEM. Its strength lies in owning premium niches, especially high-performance wearables, where it competes less on volume and more on brand loyalty, durability, and integrated tech.

Image by Bernabe Colohua from Pixabay

Q2 Earnings: Strong, But Not Enough?

Garmin posted impressive Q2 FY2025 results: revenue rose 20% year-over-year to $1.81 billion, and adjusted EPS landed at $2.17—both beating Wall Street estimates. Management raised its full-year outlook as well, guiding for $7.1 billion in revenue and $8.00 in EPS.

So why did the stock fall after the report? Profit-taking and technical exhaustion seem to be the primary culprits. After a steep multi-month rally, Garmin entered overbought territory, setting the stage for a pullback. Some analysts, including Barclays, also flagged potential deceleration in the second half, maintaining cautious ratings despite the company’s upbeat tone.

Valuation: A Bit Stretched

From a valuation standpoint, Garmin trades at a premium to the broader market. Its P/E ratio is 27.3 vs. 22.8 for the S&P 500. Its P/S ratio stands at 6.6 vs. 3.1, and its price-to-free cash flow is 35.0 vs. 20.3. In short, while the company is executing well, much of the good news may already be priced in.

Strong Financials Support the Long-Term Case

Garmin’s fundamentals are robust. Over the past three years, it has posted an 8.7% compound annual growth rate in revenue. In the latest 12 months, revenue rose 18.1% to $6.5 billion. Its operating and net margins—25.2% and 22.8%, respectively—easily beat S&P 500 averages. And financially, Garmin is rock solid: it boasts a 27.3% cash-to-assets ratio and an ultra-low debt-to-equity ratio of just 0.3%. This financial discipline gives it resilience and optionality heading into uncertain macro conditions.

Downturn Resilience: A Historical Weak Spot

While Garmin’s financials are undeniably strong, its stock has historically struggled during major market downturns. During the 2022 inflation shock, GRMN shares plunged 56%, more than double the S&P 500’s 25.4% decline. The COVID-19 crash in 2020 saw the stock fall 38.6%, again outpacing the broader market’s 33.9% drop. And in the 2008 financial crisis, Garmin endured a staggering 87.7% drawdown, far worse than the S&P’s 56.8% retreat. These episodes highlight the stock’s vulnerability to sentiment-driven sell-offs—even when its underlying business remains solid.

A Smarter Way to Play the Market

Garmin checks the boxes on growth, profitability, and financial stability. But after a sharp run-up, the near-term setup is less compelling. The recent pullback doesn’t reflect weakness in the business—it’s more a recalibration of stretched valuations and heightened expectations. Long-term, Garmin remains a high-quality name.

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