Mr. Market is an Idiot. On June 21st, I posted an article “Thinking About Garmin” in which I proposed that Garmin is uniquely positioned as the leader in a technology that is “crossing the chasm” from early adopter to mainstream. I was expecting a stellar earning report this week, which is exactly what Garmin delivered. Only to see the stock go down.

So I took another look at my analysis.

In my analysis I suggested that if, in fact, auto GPS units were on that kind of growth curve, we should at the very least see growth rates continue, and I suggested that conservatively, we should see quarter revenues for April 2007 (9 months from now) at $453 million with an operating income of about $140 million on 1.25 million units. Let me stress – this was my forecast for conservative numbers based on my take on the state of the GPS market.

This quarter Garmin delivered revenues of $432 million with operating income of $134 million on 1.28 million units. In other words – they are already within 5% of my prediction for 9 months from now!

Now, let me throw some more facts into the mix:

  • On, the top 7 products in GPS and navigation were Garmin, 17 of the top 20 were Garmin. The top GPS is ranked #13 overall in electronics (that’s the entire category).
  • Garmin announced surprising growth in Europe. In my forecast I had written off Europe as “owned” by Tom-Tom, but they’ve had supplier troubles. You have to go to #6 on to find a Garmin unit, but they do have 5 of the top 15. They are investing in Europe, so it looks like they’re not going to give up that market without a fight.
  • Garmin has opened a second assembly line and seems very focused on switching to “mass market” mode on GPS’s. Shaving costs might help them keep margins from dropping too quickly.
  • Garmin’s stock is splitting this month.

In short, my “blue sky” estimates in June are looking increasingly conservative.

So why has the stock gone down?

Two possibilities come to mind:

  • I am missing something in my analysis. Some hidden flaw in the company or market that the market sees that I don’t.
  • Mr. Market is an idiot.

I’ll be honest, I’m usually pretty skeptical of my own ability to analyze these situations. Yet no matter how I look at this one, everything I see supports my fundamental theory: that auto GPS sales are skyrocketing, and will continue to do so for some time because market penetration is still very low. I believe GPS units are going to be among the most popular gifts this holiday season, and that Garmin is going to have a virtual lock in the U.S. – with their increased marketing and existing mindshare there isn’t time for anybody who can make a dent in this timeframe – retailers are probably already placing their holiday season orders. Garmin is going to own the shelf space.

Every rental company is going to be offering GPS units, and Garmin just signed Avis and Budget (Magellan has Hertz but failed terribly to capitalize on it).

I recently proposed “The Stupid Markets Theory” that suggests that the driving force in market prices in human stupidity, and I think Garmin is going to prove the point. Because sometime in the next six months their numbers are going to be so obscenely good that whoever it is whose been selling (and thus keeping prices down) is going to be kicking themselves in a big way.