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TASER in the Tank

Show of hands, please. What should you do when a company reports an otherwise good quarter but misses estimates by a penny?

1. Load up your car with food, clothing, guns, and cash and head for a remote Montana cabin. Surely the end of the world is nigh.

2. Take your cat out for a walk. He's been looking a little pale.

3. Consider buying more shares.

You'd think #3, right? Well, forget it. When it comes to Motley Fool Rule Breakers pick TASER (Nasdaq: TASR  ) , the majority of investors are cruising I-70 on their way to Bozeman. The shares were down roughly 13% in morning trading.

What nonsense. There are plenty of good reasons not to like TASER's stock, but this morning's report isn't one of them. Second-quarter sales were up 23% over last year's Q2, while net income tripled over the same period. Even free cash flow, which the stun gun maker has sorely lacked in recent quarters, rose to roughly $4.4 million after subtracting stock options expenses.

Margins were also up across the board. Operating margin ballooned to 13.7% from 5.2% during last year's Q2, thanks mostly to higher revenue and efficient manufacturing, which more than offset increases in legal, PR, and R&D spending.

And business could continue to improve. In today's conference call, Chief Operating Officer Kathy Hanrahan said that TASER shipped 1,200 of the 5,500 TASER Cam devices produced during Q2. That left $1.1 million worth of TASER Cam inventory, $600,000 of which is finished goods.

Management wouldn't comment further, but it seems clear that Hanrahan's comments refer to satisfying pent-up demand. At the very least, the Maricopa County, Arizona Sheriff's office plans to arm 1,900 officers with the TASER X26 and TASER Cam. That's a $2.3 million order at list prices, only $0.5 million of which has been booked to date, according to TASER.

So, again, it's perfectly fine not to like TASER for its funky PR, hit-and-miss disclosure, or outsized legal risks. But there can be no doubt that the underlying business is improving. To learn more, watch David Gardner's no-holds-barred interview with TASER President Tom Smith. All that's required is a 30-day tryout of our Motley Fool Rule Breakers service. There's no obligation to buy and it's easy to get started. Just click here now.

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TASER is a Motley Fool Rule Breakers selection. Ask us for anall-access passto the service to get a closer look at the four multibagger stocks the team has uncovered.Go ahead,you've got nothing to lose. Your pass is free and it's good for 30 days.

Fool contributor Tim Beyers isn't easily shocked, but he's pretty sure a TASER shot would do the trick. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out which stocks he owns by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.

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