$339
28 June 2023
In September 2018, Apple released version 4 of its Apple Watch. Release price: $399.
In September 2020, Apple released version 6 of its Apple Watch. Release price: $399.
In September 2022, Apple released version 8 of its Apple Watch. Release price: $399.
So inflation is everywhere, except on Apple Watches. Same price, even though the product has evolved tremendously in 4 years: processor, waterproofing, health... everything is better. The latest version can even detect if you're in a car accident (thanks to a gyroscope/accelerometer built into the watch) and automatically call for help.
Meanwhile, Apple's direct competitor Garmin followed a different strategy. Seeing all those potential customers coming out of lockdowns with pockets stuffed with COVID-helpers and a great thirst for green space, its CEO Clifton Pemble figured he could push prices. The Fenix watch thus went from $700 in 2018 to $899 in 2021. Earnings per share followed: from $3.68 in 2018, to $5.63 in 2021. And the market, in its wisdom, followed: the share price rose from $60 to $180 in September 2021. Thank you, COVID.
What's next? Afterwards, once the consumer has gone running in the fields with his new $1000 watch on his wrist, he doesn't need a new one right away.
Even less so now that he's starting to go out again, travel, etc., and his budget is feeling the pinch.
Even less so, given that its budget has been squeezed by inflation.
That's even less true when you're faced with Apple Watches, which improve year after year without budging in price.
As a result, in Q1 2023, Garmin's Outdoor sector was down 27%. At the same time, inventories are rising. They are 50% higher than usual in relation to sales. You can see a warehouse full of Garmin watches, which are becoming obsolete day by day: every time a new competing product is released, the Garmin watch loses value.
The share price followed this slope, returning to $100.
What's going to happen between now and the end of the year? Pemble will have to get rid of its stocks before they lose too much value. And to do that, we're going to have to cut prices drastically. By running a few simulations, this should bring earnings per share back to where they were before COVID; around $3.50. The market, in its wisdom, will put a normal multiple back on it - say 15. That puts our share price at around $50, a drop of 50%. We have set up a put line on Garmin.
PS: on the subject of PE, in 2007, after a few years of good results, Garmin's share price had risen to 37 PE. It was then worth $100. That's today's price, which means zero return in fifteen years. Keep this in mind if you hold stocks with multiples >30 in your portfolio.
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