Algorithm or analyst?
To better understand how AVI strategies work and compare them to the work of an investment analyst, let’s manually analyze one of the companies recently selected by the INDIGO AVI strategy. Let’s take Garmin Ltd. (GRMN) as an example.
What does the AVIstocks program understand about this company?
It “understands,” for example, that the company’s output over the past 5 years has grown from 4.19 to 6.30 billion, which represents an average annual growth rate of 8.5%. Earnings per share over these same 5 years rose from $5.19 to $7.35, representing an average annual growth rate of 7.2%. In other words, the company is growing quite well, but it cannot be said to be showing particularly outstanding growth - there are better examples out there.
However, the company’s net profit margin is truly outstanding: every dollar of revenue generates 38 cents in net profit for shareholders. This is after all expenses and taxes have been paid. An excellent result! The program “understands” all of this.
GRMN’s stock price today is 218.57. Earnings per share are $7.35, resulting in a P/E ratio of 29, which is a bit high. The program “understands” this as well. However, given the year-over-year earnings growth, the company’s price isn’t excessively high - it’s quite reasonable, although there are better options on the market. And the program “understands” this, too.
Does the company have significant debt? With total assets of $9.6 billion, its total liabilities amount to $1.8 billion. That is very little! This indicates that the company does not need loans (and it has no loans - the program recognizes this as well); it has sufficient “cash flow” from sales to cover virtually all of its needs, both current and those related to growth. The program “understands” all of this as well.
The program also “understands” that the company currently pays a dividend of $3.0 per share. Moreover, this amount is steadily increasing; 5 years ago, the dividend was $2.24 per share. The program also “sees” that paying dividends does not strain the company, since it pays out only 41-45% of its net income as dividends. This means it will be able to continue paying shareholders decent dividends in the future. The program “sees” and analyzes all of this.
The program also “understands” that the company has a market capitalization of $42 billion and is classified as a mid-sized company. It also understands that this is a technology company, which is a positive, as technology companies tend to perform well.
Based on these and many other factors, the program calculates the company’s key ratings. The growth rating turned out to be not particularly outstanding; the company outperforms the average U.S. company on this metric but does not rank among the top 25% of U.S. companies. In terms of competitive advantage and investment attractiveness, Garmin ranks among the top quarter of U.S. companies. However, GRMN does not stand out on the price reasonableness rating: the price is decent - above average - but it does not rank among the top quarter of U.S.-listed companies.
The AVIstocks program works exclusively with numbers, and it “understands” and takes into account all these factors that are important for the company and its stock.
And what does the program “not understand” about this company?
The program does not understand that Garmin specializes in developing devices and software for GPS equipment used for both military purposes and premium-segment recreational activities. And it is precisely this that allows the company to maintain high profit margins and successfully compete even with much larger companies by market capitalization, such as Apple or Samsung.
The AVIstocks program does not know that the majority of Garmin’s sales come from wearable devices in the fitness and outdoor recreation segments, where the company focuses on premium, specialized devices, and that in the aviation sector, Garmin products receive high-level safety certifications.
The program does not know that Garmin’s products in the budget smartwatch market may be displaced in the future, since similar products from Apple and Samsung are tightly integrated with smartphones, and Garmin’s products may not be as competitive in this regard.
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