TASER shares today trade at their lowest levels of the year. There's a reason for that. TASR data by YCharts.
"TASER Reports Record Quarterly Revenue of $50.4 million."
That's how stun-gun maker TASER International (AXON 0.28%) led off its earnings release Tuesday. And suffice it to say, you know a stock's in trouble when it's scheduled to report "earnings" one day but instead does the equivalent of shouting, "Hey, guys! Take a look at these spiffy revenues!"
So if you were looking at the ticker tape on CNBC yesterday and wondering why TASER stock had just taken a 12% tumble -- that right there was your first clue.
The bad news
Announcing fiscal Q3 2015 results Tuesday morning, TASER reported:
- The aforementioned "record" revenues of $50.4 million, a 14% increase over Q3 2014 revs.
- Gross margins down 300 basis points to 61.7%, "mostly" due to the fact that TASER's red-hot Axon on-body police cameras, which have been selling briskly, earn lower margins than the Taser-brand stun guns that made the company famous.
- Operating profit margins down nearly 15 full percentage points, to 13.3%, thanks both to lower gross margins and rapidly growing costs for selling, general, and administrative spending and research and development.
- On the bottom line, a mere $0.03 earned per diluted share -- an 89% year-over-year drop.
If you'll forgive the bluntness, these results were uniformly horrible and go a long way toward explaining why investors sold their shares in droves Tuesday.
Yet the news was not all bad.
The less bad news
Take free cash flow, for example -- in my view, a better way of valuing companies on the actual cash profit they produce than you get from GAAP financials alone. TASER generated a whopping $17.3 million in positive free cash flow last quarter, which was nearly 10% more cash profit than it produced in the year-ago quarter, and more than 11 times the company's reported "profit" under GAAP.
Year to date, TASER has generated free cash flow of $26.5 million, putting it on course to generate positive cash profits of perhaps $35.3 million if things keep going as they have been so far this year. With TASER's market cap now reduced to just $1.1 billion after the post-earnings sell-off, that leaves the stock selling for about 32 times this year's likely free cash flow.
Now, this is not a "cheap" valuation by any means. But it's much more attractive than the stock's trailing P/E ratio of 57. And 32 times FCF is not at all an unreasonable valuation, given that analysts who follow the stock, as quoted on S&P Capital IQ, posit a long-term profits growth rate of 30% for TASER.
Long story short, while I don't see TASER stock as cheap enough to recommend it right now, I probably wouldn't short it at these prices, either. With new products ranging from in-car video systems to interview-room cameras to a new and improved "Axon Body 2" camera rolling off its assembly lines, TASER could still be a contender.
