To us, the valuation of Garmin does look stretched, especially considering the trend for a drop in profitability for most personal consumer electronic devices – an industry in which Garmin is increasingly exposed.

The problem with the bearish call spread structure in this Tear Sheet from an investment perspective is simply that a cool product launch or a quarterly earnings beat may cause the price of the stock to pop.

There are six valuation scenarios below the current stock price and only two above; the two higher scenarios seem very unlikely to us, since they imply a continuation of a high profitability over the next five years, despite the increasing ubiquity of GPS tools in competing products from such giants as Nike, Apple, Suunto, etc.

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