NEW YORK (TheStreet) -- Garmin (GRMN) - Get Garmin Ltd. (GRMN) Report shares dropped sharply, on reports the company may be overvalued, and analyst downgraded shares ahead of a potential deluge of fitness related bands, notably from Google (GOOG) - Get Alphabet Inc. Class C Report and Apple (AAPL) - Get Apple Inc. (AAPL) Report.

Pacific Crest Securities analyst Brad Erickson downgraded the stock to "underperform," noting shares are currently overvalued and is worth "something in the mid-$40s" based on 10x-to-12x forward-year estimates Enterprise Value-to-earnings. 

Garmin shares were losing more than 5.4% to $57.35 in early morning trading in New York.

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Headquartered in Switzerland since 2010, the Olathe, Kansas-based Garmin currently produces a number of location finding devices including portable and fixed GPS-based systems, separate navigation software for smartphones, a number of mobile camera designs including "dashcams" for vehicles and a line of "vivofit" fitness bands.

GPS devices now must compete with smartphones, navigation software competes with similar programs from Apple (AAPL) - Get Apple Inc. (AAPL) Report, Google (GOOG) - Get Alphabet Inc. Class C Report and Microsoft/Nokia (MSFT) - Get Microsoft Corporation (MSFT) Report and fitness bands compete with similar devices from Nike (NKE) - Get NIKE, Inc. (NKE) Report, Fitbit and others. Apple, Microsoft and others are expected to announce new smartwatch designs in time for the holiday season.

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PacCrest is basing its estimates on a number of factors:

  • Wall Street is overestimating the impact of vivofit upside potential in 2014. While 2014 is clearly a breakout year for the fitness tracker sub-segment, PacCrest has reservations about the category's ability to sustain growth into next year, as early indications around user trends appear relatively unfavorable.
  • Any action camera optimism that may be priced in at current levels is likely to end in disappointment. Pacific Crest says the GoPro (GPRO) - Get GoPro, Inc. Class A Report device is currently "crushing" Garmin's Virb action camera. "Even if Garmin were to begin seeing traction the margin dilution to the outdoor segment could actually be meaningful for a segment that drives more than one-quarter of the company's operating profit.
  • A presumptive iPhone refresh this fall with a larger screen could drive incremental headwinds for personal navigation devices for which the Street is not accounting. PacCrest believes "the presence of a larger-screen iPhone during Q4 could have an immediate impact on Garmin's PND segment, which is 43% of the company's revenue and roughly one-quarter of operating profit.
  • A potential smartwatch from Apple would likely carry substantial headline risk, as well as a certain amount of actual competitive risk to Garmin's vivofit fitness bands. An Apple wrist device would likely be a meaningful headwind for Garmin heading into the seasonally strongest holiday quarter where fitness products tend to be very popular gift items.

Overall, Garmin is benefiting from filling the channels with new products but Erickson has "concerns about the underlying strength of the outdoor and fitness businesses which contribute over half of the company's operating profit and are critical, in our view, if the company is to grow earnings meaningfully.

Garmin is expected to announce its earnings on July 30th. Analysts surveyed by Thomson Reuters expect the company to earn 76 cents a share on $709.25 million in revenue.

-- Written by Gary Krakow in New York.

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Gary Krakow is TheStreet's Senior Technology Correspondent.