Dueling Fools: TASER Bull

Once more into the breach, dear Fools?

When last we dueled over Motley Fool Rule Breakers pick TASER (NASDAQ:TASR), I singled out three criteria that had me feeling bullish:

1. Substantial insider ownership
2. Inept competition
3. Lower lawsuit risk

All of that is still true, yet the stock is trading for 14% less than it was in May.

Don't call it overvalued
Still, Rich is likely to tell you that TASER is overvalued by almost any measure. He'd be right -- save for history:

See what I mean? TASER is cheaper today than it was three years ago. Only now, growth rates are accelerating. Analysts project 32% average earnings growth over the next several years.

For 2007, they forecast a 138% gain on the bottom line. That puts the stock trading for just 28 times these year-ahead projected earnings. How, exactly, is that expensive? More on that in a bit.

Return of the three amigos
For now, let's get back to TASER's advantages.

First, there's insider ownership. CEO Rick Smith and board member Bruce Culver together own more than 5% of the outstanding shares. And not one insider has sold over the past 52 weeks, according to Form 4 Oracle. Only former chairman Phillip Smith engaged in a stock transaction -- he bought 100,000 shares in June.

Second, there's inept competition. Stinger Systems, still unprofitable, has been stung by a telling video. Meanwhile, Law Enforcement Associates' (AMEX:AID) latest report with the SEC says that it reduced spending on research into a TASER alternative during 2006. Guess we'll be seeing that stun gun soon, eh guys?

Third and finally, even though TASER management has played fast and loose with the truth in some of its press releases, lawsuit risk is lower today than it was last year. More than 30 cases have been either dismissed or settled, including a class-action shareholder suit. Momentum is on TASER's side.

When everyone hates it, buy
As if that matters. Those following the stock in the Motley Fool CAPS investor intelligence database give it just two stars:

Meanwhile, short-selling Sith Lords -- I use that term loosely, by the way -- have piled on. More than 19% of the available shares are sold short. When, not if, these sourpusses are forced to cover, the stock will pop like a bottle rocket on the 4th of July.

Stunning returns still ahead
There are plenty of legitimate reasons to still be wary of TASER. Certainly the pugnacious practices of the Brothers Smith have left me wanting from time to time. But they also deserve credit for creating a device that, despite the fear mongering, saves far more lives than it takes.

That, in turn, has helped TASER turn the corner financially. Free cash flow is positive and growing. Share buybacks have created value for investors. And operating margin, at more than 20%, is at its highest level in years.

But David Gardner, captain of the good pirate ship Rule Breakers, who was first to recommend the shares, says it best in his CAPS pitch:

"Everyone questions the management, and I think those questions are justified. But few people who have really studied TASER stun-gun technology and its positive effects both for the police department and for citizen safety can see any ambiguity at all, here.... This product is really catching on."

So will the stock, once investors realize that the widespread adoption of the TASER device is inevitable. For now, they're acting as if that day will coincide with Tom Cruise's appearance as a guest host on The 700 Club. So long as that view persists, a buying opportunity remains for patient Fools.

The Duel's not done yet! Go back and read the other arguments, make your own case in Motley Fool CAPS, then vote for the winner.

TASER is a recommendation of the Motley Fool Rule Breakers growth investing service. Ask for us a free all-access pass to get a closer look at all six stocks that have more than doubled since this market-beating portfolio began two years ago. Your pass is good for 30 days, and there's no obligation to subscribe.

Fool contributor Tim Beyers, ranked 1,065 out of more than 21,000 in the CAPS investor intelligence database, thinks Cruise was at his best in Top Gun. Maybe Jerry Maguire. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. All of Tim's portfolio holdings can be found at his Fool profile. His thoughts on growth stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy is a rebel with a cause.