Close-up: Garmin vs. Nvidia

Garmin ran with the wind after blowing out earnings estimates last week.

Shares went from $83 on the eve of earnings to a current PPS of $99 in less than a week. The Co not only beat estimates, but raised guidance. This Thursday, another hot company will report earnings.

Nvidia, seems poised to ride the tech tail set by companies like Garmin, which raised guidance for Q3. If NVDA can replicate GRMN's performance, there should be upside, right? Well, yes and no.

While Garmin's stock has shot up at an unsustainable pace, its growth rate and whopping return on equity — more than 40% — can justify a forward P/E of 25. In addition, the stock has a short interest of 14% on a float of 102 million shares.

NVDA, with a forward P/E of just 20, has a smaller market cap of $15 billion to Garmin's $21 billion. Profit (15%) and operating (16%) margins were solid after Q1, and return on equity was a healthy 26%. The Co also has $1.3 billion in cash and zero debt.

Short interest for NVDA is low at 6.6%, so a positive earnings report won't be boosted by the kind of squeeze that launched GRMN. Nvidia stock is up 50% since early April.

The stock appears to be buyable at $43 as the market opens, but patience is key. So is some comparison shopping. One of the most telling indicators about NVDA and GRMN in the near and long term is institutional holding. NVDA is 76% held by institutions. GRMN? Only 31%, which is why I'm not sold on a NVDA buy as a trade. The street will show up en masse at Garmin's door sooner or later.

As an earnings play, I like NVDA. But I still prefer GRMN on a dip. If I were already long NVDA, I'd feel pretty comfortable, bad market and all. GPS will be a growth sector even if I don't have it in my car, handheld device or homemade aluminum robot.

I think I'll stay on the sideline and keep watching. Or rather, hit the sack. It's 3:51 a.m. here and time to get those zzz's.

Pupule Paul has no position in GRMN and NVDA.

[Ed's note: When I wrote this early in the morning, I wrote mistakenly that NVDA was in the GPS sector. I'd forgotten that it is a chipmaker. It was Navteq (NVT) that I was thinking of. Yep. GPS is still a foreign land for me.]