Look to Europe to Catch the GPS Beat

While both companies, at about 15 years old, offer deep experience in the field of global positioning and will boast over $1 billion in sales in 2005, TomTom is devoted solely to GPS consumer products.

Beating the Drum for TomTom

TomTom trades on the Euronext Amsterdam exchange under the ticker symbol TOM2, and it can also be found on the U.S. Pink Sheets under the ticker TMOAF.

TomTom is making its first push into the North American market, which accounted for only 4% of its third-quarter revenue. With a large new market where there is low relative usage of GPS products (2% market penetration in the U.S. vs. 6% in Europe), TomTom's already impressive numbers should go off the charts in 2006 if it experiences any measure of success here.

Its growth based on the European market alone has been remarkable: TomTom reported a revenue rise in the third quarter of nearly 375% to $290 million (converted from euros) and an earnings increase of 166% to nearly $69 million. Even assuming a dramatic slowdown in its rate of growth and annualizing that latest earnings figure throughout next year, you end up with a stock that is trading at a forward P/E of less than 15. From talking with in-store salespeople, I believe there's no reason to assume a slowing in that rate of growth -- GPS devices seem to selling extremely well.

Trading Issues

While TomTom may be the purest play with the most eye-popping growth in the portable GPS sector, timing is a tricky question. You might expect gadget stocks to catch fire during the fourth quarter on hopes for strong holiday sales, but neither Garmin nor TomTom shares have done much of late; it may take until fourth-quarter earnings are reported next month before this foreign stock in a still underfollowed niche tech segment really gets moving.

Technicians will have a harder time dealing with TomTom than Garmin because it came public only in May of this year, and there is little in the way of chart history to light the path:

Unsteady Beat Traders who want to buy TomTom should scale in with partial positions

Source: BigCharts.com

It hasn't been acting well of late, from a technical standpoint, so getting that perfect price will be difficult. Traders would be wise to scale in with partial positions over the next few weeks.

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At the time of publication, Hanlon was long TomTom in client accounts, although positions may change at any time.

Charles P. Hanlon focuses on non-dollar investments. He is currently the president of Delta Global Advisors. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Hanlon appreciates your feedback; click here to send him an email.