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Has TASER Turned a Corner?

I've been a vocal critic of TASER International's (Nasdaq: TASR  ) management in the past. Well, not today. After reading through the third-quarter earnings report, I've nothing but applause to offer.

Let's run though the numbers. TASER earned $0.04 a share on $18.3 million in sales, both ahead of expectations. Gross margin fell by nearly 3 percentage points but still remains at a very healthy 63%. Operating margin, on the other hand, improved by 14.8 points to 20.4%. Net margin was higher by 9.9 points to 13.1%. Neither of those metrics have been that good since December of 2004, when David Gardner recommended the stock to Motley Fool Rule Breakers subscribers in the high 20s.

Could a return to those levels be ahead? TASER's cash-generating ability suggests the possibility. The stun gun maker has produced $10.9 million in cash from operations over the trailing 12 months, a 41.6% improvement over the $7.7 million generated in the year-prior period.

And TASER is putting that moola to good use. Two months ago, for example, it agreed to settle a class action lawsuit for $21.8 million. That's remarkably cheap when balanced against TASER's cash-generating ability and the $50 million in cash and securities that rests on its balance sheet as of this writing.

What's more, management spent $2.2 million during Q3 to repurchase 300,000 shares at an average price of $7.33 a stub. TASER's shares closed at $9.45 yesterday, a 29% premium to the average buyback price.

One of the secrets of investing well is to buy into businesses with defensible franchises that efficiently allocate capital. TASER has secured the former, while the latter has suffered from bad luck and management inconsistency.

But recent moves and the Q3 numbers suggest that may finally be changing. If so, and if management's penchant for stunning hyperbole can be checked at the door, then today's TASER is as close to a screaming bargain as you'll find in David's portfolio of rebel growers.

A stunning array of related Foolishness is at your disposal:

TASER is a Motley Fool Rule Breakers selection. Get more insight on the company with David Gardner's no-holds-barred interview with new company chairman Tom Smith. All that's required is a 30-day tryout of the Rule Breakers service. There's no obligation to buy and it's easy to get started. Justclick here now.

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. Get the skinny on everything Tim is invested in by checking his Fool profile. The Motley Fool's disclosure policy is a rebel with a cause.

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