Previewing 2007: TASER

If 2006 proves anything, it's that Motley Fool Rule Breakers pick TASER (Nasdaq: TASR  ) is unpredictable. Don't expect that to change in 2007.

Legal? Or eagles?
On the one hand, this stock story could be a tragic tale of legal liability. The stun gun pioneer is named as a defendant in 56 pending lawsuits accusing wrongful death or product liability.

On the other, TASER could become the battlefield hero that we've been searching for in America's struggles across the globe. The so-called XREP shell could save lives as it aids soldiers in the fight against the Iraqi insurgency. The TASERNET defense system could perform similarly. (If, that is, the military powers-that-be know how to play buzzword bingo.)

A $4 billion monopoly
Either way, investing in TASER now is an exercise in speculation. But there's evidence to suggest that taking the plunge is worthwhile, especially at these levels. Former chairman Phillips Smith bought 100,000 shares at $7.62 in July. The stock trades for $7.90 as I write.

Plus, my 2005 review of the business pegged TASER's addressable market at better than $4 billion. And that was before the TASER Cam was winning customers. Why should you care? Capital IQ says the stun gun maker has booked just $210.7 million in sales since 1999.

So plenty of opportunity remains. Expect to see more proof of progress in the fourth-quarter report, which should arrive in February. TASER booked just a penny per share in earnings on $12.6 million in sales during last year's Q4. Analysts expect $0.04 in profit on $19.2 million in sales this time. But that estimate could be crazily conservative; TASER booked $0.03 per share on $18 million in sales during Q3.

Not buying what management is selling
Not everyone buys my bullish take. Fellow Fool Brian Lawler, who goes by TMFBreakerBrian in these parts, writes in his pitch to Motley Fool CAPS players:

"I just don't think TASER's management is very shareholder friendly. Their spending on air travel (on management-owned planes) alone is quite ridiculous. Plus the company can't get ever get their financials in order and are constantly restating/refiling their 10Qs. This is either a sign of deceit or just utter disorganization (neither of which would make me feel good about the company)."

That's not entirely fair in my opinion. TASER's filing delays haven't materially altered results (as it now appears will be the case at Apple (Nasdaq: AAPL  ) ). Plus, TASER president Tom Smith told David Gardner in June that the company plane helps to keep travel costs down. (Full interview accessible here for Rule Breakers subscribers. Not a subscriber? Click here to get 30 days of free access now.)

Still, I understand Brian's reticence. Management's head fakes with legal PR first shook my confidence in July and again last month. Even when executives have made attempts to be forthright, as CEO Rick Smith did here in October of 2005, hype tends to overshadow sound logic.

Shocking value?
Yet the valuation remains compelling. Here's how I saw it at the end of 2005:

"Take 30% growth out 10 years from the estimated $56 million TASER will make this year [2005] and you arrive at $772 million. That total becomes $1.62 billion if you figure 40% annual growth. Split the difference -- 35% growth -- and you're at $1.13 billion. TASER was worth $543 million as I wrote this report. Were the stock to trade for just one times sales in 2015, it would still be at least a double from here. But that's conservative. TASER is a high-growth company with unique products, loyal customers, and patent protection. It's much more likely to be trading closer to three or four times sales. And therein, Fool, lies the multibagger."

Today, the firm's worth has dropped to $484 million. Sales, meanwhile, are on pace to reach $67 million during 2006. Using the same math -- 35% growth for the next nine years -- conjures $1 billion in 2015 revenue. Of course, that kind of growth is astounding and hard to achieve, but many believe this company can do it.

Fool's final word
In other words, little has changed so far as the investing thesis goes. No doubt that's cold comfort to those who watched the stock underperform the market this year. But investing in informed speculations like TASER can be a long, bumpy ride. My advice? Enjoy the modest gains and huge potential and leave the hyperactive trading to those excited, delirious stock operators whose idea of planning for the long-term is booking a lunch date.

Check out the other companies featured in"The Motley Fool's 2006 in Review and 2007 Preview"special.

TASER is a Motley Fool Rule Breakers selection. Get more insight on the company with David Gardner's no-holds-barred interview with 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, ranked 1,013 out of 17,523 in Motley Fool CAPS, 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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