Has TASER Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock and then decide if TASER (Nasdaq: TASR  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that a company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at TASER.

Factor

What We Want to See

Actual

Pass or Fail?

Growth

Five-year annual revenue growth > 15%

4.8%

Fail

 

One-year revenue growth > 12%

12.8%

Pass

Margins

Gross margin > 35%

52%

Pass

 

Net margin > 15%

2.5%

Fail

Balance Sheet

Debt to equity < 50%

0%

Pass

 

Current ratio > 1.3

3.87

Pass

Opportunities

Return on equity > 15%

2.8%

Fail

Valuation

Normalized P/E < 20

109.82

Fail

Dividends

Current yield > 2%

0%

Fail

 

Five-year dividend growth > 10%

0%

Fail

       
 

Total Score

 

4 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at TASER last year, the company has picked up a point. The stun-gun company is back in the black, and the stock has jumped more than 30% in the past year as interest in self-defense continues to grow.

TASER has always been embroiled in the ongoing debate over lethal force, which has intensified over the past year as several tragic events have refocused attention on gun-related issues. The police shooting of a Florida teen in February by a police officer led to protests about police use of deadly force, while a gunman's rampage at a movie theater in Colorado raised the issue of whether tougher gun control laws would be effective at preventing future incidents.

Still, businesses that rely on gun sales have had extremely strong results. Both Smith & Wesson (Nasdaq: SWHC  ) and Sturm Ruger (NYSE: RGR  ) have seen demand for guns go through the roof, with Sturm Ruger having to take the extraordinary step of turning down new orders because of lack of capacity. Meanwhile, sporting-goods store Cabela's (NYSE: CAB  ) has pointed to gun sales as a key component of its success.

TASER has seen its share of controversy as well, but the company has responded to it. Its latest X2 version puts five-second limits on charges, reducing the chance of an accidentally lethal shock. That has helped increase sales to law enforcement and military buyers, which helped TASER's revenue rise 33% in its most recent quarter.

For TASER to improve, it needs to continue riding its greater success to higher sales and then convert that revenue to bottom-line profit. If it can do so, TASER has plenty of room to keep moving higher.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfection than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate the best investments from the rest.

TASER may not be perfect, but we have some other ideas you might like better. Let me invite you to learn about three smart long-term stock plays in the Fool's popular special report. It's yours for the taking and is absolutely free, but don't miss out -- click here and read it today.

Click here to add TASER to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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