TASER International (NASDAQ:TASR) shot up as high as 14% in Wednesday after the company reported some pretty blockbuster sales data for the end of fiscal 2013. But was the rise in stock price justified?
In its latest update on stun-gun sales, TASER reported Wednesday that it has booked several new orders for its eponymous weapons. Most of these orders were received and shipped in the fourth fiscal quarter of 2013, and will show up in this quarter's revenues when full-year earnings are released next month. The balance will ship and be credited to revenues for Q1 2014.
Specifically, TASER sold:
- 400 TASER X2 Smart Weapons to the Riverside County Sheriff's Department in California.
- 185 X2s, and also TASER CAM HD recorders, to the U.S. Bureau of Indian Affairs Office of Law Enforcement Services.
- 150 X2s and TASER CAMS to the Henrico County Police Department in Virginia.
- 118 X2s and TASER CAMS to the Illinois State Police Department.
- 100 TASER X2s to the Houston Police Department in Texas.
TASER also reported selling:
- 400 TASER X26P "Smart Weapons" to the Raleigh Firing Range in North Carolina.
- 400 more X26Ps to the San Bernardino County Probation Department in California.
- 350 X26Ps to the Nassau County Police Department in New York.
- 340 X26Ps to the Columbus Police Department in Ohio.
- 319 X26Ps to the Birmingham Police Department in Alabama.
- 300 X26Ps to the Pittsburgh Bureau of Police in Pennsylvania.
- 200 X26Ps to the Forsyth County Sheriff's Office in Georgia.
Additionally, unspecified "international customers" have ordered 260 of TASER's X2 Smart Weapons, and 1,538 TASER X26s.
Finally, the company noted that it made additional, smaller sales of X2s, X26Ps, and TASER CAM HDs -- presumably orders of less than 20 units each -- and/or subscriptions to the company's TASER Assurance warranty and upgrades plan, to law-enforcement customers in Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Minnesota, Missouri, New York, Ohio, Pennsylvania, Texas, Virginia, Washington state, and Wisconsin.
TASER did not disclose financial details on any of these sales, but at advertised list prices (for those products for which prices are listed), their value would appear to add at least $4.4 million to TASER's revenue stream.
Now here's the punchline: In response to this data, investors bid up the value of TASER's market cap by $105 million. Is that rational?
Sales and profits
I mean, let's say TASER's sales were actually a bit higher than $4.4 million. In fact, let's say that when you add in the value of batteries, holsters, cartridges, and similar accessories sold, on top of the cost of the stun guns themselves, TASER actually did twice $4.4 million in business. That's still a $105 million increase on $8.8 million in sales, or, put another way, a 12-times multiple to sales -- where TASER's own shares ordinarily sell for just 6 times sales.
In other words, TASER investors appear to think that the sales the company booked in the final minutes of 2013 -- when salesmen were presumably rushing around, cutting deals and trying to "make their quota," perhaps at the expense of profit margins -- were nonetheless worth twice as much as the company's sales at other, saner times of the year.
That doesn't make a lot of sense. When you consider further that even if Taser's sales force was able to maintain its 12.8% profit margins while scrambling to book end-of-year sales, the company still could only possibly have earned about $1.1 million on even $8.8 million in revenues -- and probably less.
Translating that into a $105 million increase in market cap makes no sense at all.
Fool contributor Rich Smith and The Motley Fool have no position in any of the stocks mentioned. 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.