Garmin share price outpaces IoT stocks DexCom and Skyworks

Internet of things stocks have fallen in recent months, as inflationary pressures have correlated with lower growth. Garmin, DexCom and Skyworks are three of the largest internet of things stocks in the world, yet none of them have been able to overcome the technology rout.

Like other tech stocks, internet of things (IoT) stocks like Garmin [GRMN], DexCom [DXCM] and Skyworks [SKWS] have been beaten down recently, as the cost of living squeeze has reduced the discretionary income available to customers. IoT describes physical objects that connect to the internet, using sensors, software and other technology to exchange and communicate data with other devices.

As of the close on 20 July, Garmin has been the most resilient performer, dropping 20.9% year-to-date and 5.5% in the past three months. On the other hand, DexCom has been the most beaten down, falling 38.8% year-to-date and 33.2% in the past three months. Skyworks has dropped 30.4% year-to-date and 11.9% over the past three months.

Although the IoT market has struggled in recent months, there are signs of growth. Garmin, DexCom and Skyworks are the three largest holdings in the Global X Internet of Things ETF [SNSR], which has risen 13.8% from its 52-week low on 5 July and was up 8.7% over the past week as of 20 July.

What’s more, the long-term picture is much more promising. According to market research by Data Bridge, the IoT market is forecast to expand at a CAGR of 27.3% through to 2029.

Garmin shares show the most resilient performance

Garmin is a Swiss-domiciled activity tracker and sports watch company that uses technology for enhancement purposes. It has managed to outperform other IoT stocks due to its resilient trading updates. In fact, in its Q1 trading update, the company achieved record revenues of $1.2bn, which represented a 9% increase year-over-year. This was primarily driven by the outdoor segment, where revenues increased 50% year-over-year to $384.6m, thanks to strong demand for adventure watches.

However, there were several challenges that also burdened the company. For example, high freight charges and supply chain challenges meant that operating costs increased significantly. Therefore, operating income totalled $229m, an 8% decrease on the year-ago quarter. The fitness segment of the company also saw revenues decrease 28% year-over-year due to the normalisation of demand post-pandemic.

For the full year, Garmin expects revenues of $5.5bn, a 10.4% increase year-over-year, and earnings per share of $5.90, a year-over-year increase of 1.4%. It also sports a dividend yield of 2.8%.

Analysts are confident about the future for Garmin stock. According to The Wall Street Journal, the stock has four ‘buy’ ratings and four ‘hold’ ratings. It has a median price target of $131, implying an upside of 23.3% on its 20 July closing price.

DexCom attracts largest number of ‘buy’ ratings

DexCom is involved in diabetes management and produces glucose monitoring systems. Over the past few years, DexCom stock has managed to soar, yet it has run into several difficulties recently. For example, although revenues grew 25% year-on-year to $628.8m, this was still lower than the prior two quarters.

Most worryingly, to cope with rising competition, DexCom has had to increase its costs, placing a strain on margins. In fact, in the quarter, operating margins only totalled 8%, far lower than the 14.2% recorded in the previous quarter.

In 2022, the company expects revenues of $2.82–2.94bn an increase of 15–20% year-over-year. Operating margins are also expected improve to around 16% for the full year.

Analysts are confident about the future for DexCom stock. According to CNN Business, the stock has 17 ‘buy’ ratings and three ‘hold’ ratings. With a median price target of $120, implying an upside of 46% on its 20 July closing price.

Skyworks reveals strong earnings

Skyworks is a semiconductor manufacturing company for use in radio frequency and mobile communications systems. Although its share price may not reflect it, the company has been performing well. For instance, in the second quarter, it exceeded revenue expectations, reporting $1.3bn for the quarter. This represents a 14% increase year-over-year. At the same time, operating income reached $490.9m, marking double-digit growth from last year.

Unfortunately, there are many pandemic-related supply chain disruptions, and this has also led to weaker margins. Even so, Skyworks still expects double-digit year-over-year revenue and earnings growth in the third quarter. With a dividend yield of 2.4% and a share repurchase programme of $2bn until January 2023, shareholder returns are also strong.

Analysts are confident about the future of Skyworks stock. According to MarketWatch, it has 14 ‘buy’ ratings and 14 ‘hold’ ratings. It has an average price target of $134, implying an upside of 25.3% on its 20 July closing price.