Is TASER the Perfect Penny Stock?

Low-priced stocks are often low-priced for a reason: They have significant problems to overcome. Yet for those that have fixed their problems, they may be ready to take off to the next level.

At Motley Fool CAPS, the 180,000 member-driver investor community where informed opinion is transformed into ratings from one to five stars, a "penny stock" is any stock trading under $10, and you'll find some of the best CAPS All-Stars regularly seeking out winning single-digit investments. We identify them with a penny icon, and by pairing up their opinions with companies trading for pennies on the dollar, relatively speaking, we may end up with more than just chump change.

Of course, just because a stock is low priced, that isn't necessarily enough to suggest it will have an easier time recording big gains. Low-priced stocks are often low-priced for a reason. But this week we look at stun-gun maker TASER (Nasdaq: TASR  ) , whose stock recorded a stunning 26% gain on Friday after reporting stellar results and now trade at just over $8 a share.

TASER snapshot

Market Cap

$426 million

Revenues (TTM)

$100 million

1-Year Return

60.8%

Return on Investment

2.6%

Estimated 5-Year EPS Growth

30%

Dividend and Yield

N/A

Recent Price

$8.07

CAPS Rating (out of 5)

**

Source: FinViz.com. N/A = not applicable; TASER doesn't pay a dividend

Armed and dangerous
Law enforcement is arming itself these days not with handguns but rather less than lethal options like Tasers. Where gunslinger Smith & Wesson (Nasdaq: SWHC  ) reported a 2.5% drop in sales to law-enforcement agencies TASER, whose products are primarily sold to police departments, enjoyed an 18% surge in sales, up $4.4 million to $28.8 million.

Departments are probably focusing their limited resources on where they believe they'll get the most, um, bang for their buck. That's why we see thermal-imaging-camera maker FLIR Systems (Nasdaq: FLIR  ) saw revenues drop 14% year over year in its government systems division . Agencies will get more use from a Taser that can also help lower litigation costs arising from the inevitable lawsuits that arise out of use of lethal weaponry.

Yet everyone seems to need to be better armed these days. Smith & Wesson shot out the lights with its earnings report, and Sturm, Ruger (NYSE: RGR  ) was on target as well, though both gunmakers pulled back earlier this month after an analyst said it appeared FBI background checks eased up to just under 15% growth. That's below the 20% or better they had been recording , but it's a data point that sits outside the purview of TASER's target market.

I see you
Also seeing strong sales growth was its Axon line of on-body camera products, which saw a 31% increase, though when coupled with its Evidence.com digital evidence management system, revenues soared more than 65% from the same period in 2011 .

I always thought these were complementary services that would serve TASER well when they were first introduced and a much better use of its resources than the text-messaging service it branched off into at the same time (and that it subsequently dropped ). Having used vehicle-mounted camera systems like those made by Danaher's (NYSE: DHR  ) Martel Electronics division over the course of 20 years in law enforcement, I agree the on-officer camera overcomes many of the limitations inherent in the competition.

A shocking result
Yet it's not as if TASER's cheap at these prices. It trades for more than 200 times its earnings and more than 38 times estimates, and even factoring in the earnings growth at 30% a year analysts are counting on, it still looks rich. If you're looking to lock and load your portfolio with some weaponry, Smith & Wesson at just 10 times estimates seems a better bet. Also, TASER's enterprise value trades at a lofty 20 times the free cash flow it generates, much higher than the 13 times Smith & Wesson goes for.

For long-suffering TASER investors, the latest quarterly earnings report is a welcome reprieve, but it seems that even this low-priced less-than-lethal-weapons maker would still cost investors a pretty penny if they want to get in at these levels. But let me know in the comments section below if you think TASER's stunning earnings report makes it worthy of scoping out a position here.

Make some change
Smith & Wesson has been riding a wave of doubt and fear about the coming elections coming, but gunmakers aren't the only ones whose fortunes can change depending on the outcome. Check The Motley Fool's free report "These Stocks Could Skyrocket After the 2012 Presidential Election." Barack Obama and Mitt Romney have competing visions for getting America back on track, but The Motley Fool will have you prepared to profit -- no matter who wins! Download your copy now, for free, and discover hidden ways to profit from the election.

Rich Duprey and The Motley Fool have no positions in the stocks mentioned above. Motley Fool newsletter services recommend TASER. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 29, 2012, at 8:43 AM, shortnlong wrote:

    When you consider previous splits it's trading at $96.00 a share.

  • Report this Comment On November 06, 2012, at 11:18 AM, Learn2compound wrote:

    Taser is pricy right now. Too pricy if you ask me. So I sold my shares at 8 with a healthy profit. Might buy again once it drops under 7.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2081061, ~/Articles/ArticleHandler.aspx, 9/22/2014 2:46:42 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement