TASER: Finally on Target?

As far as investors are concerned, TASER (Nasdaq: TASR  ) hasn't hit the mark in years. But that may finally be changing. Over the past two weeks, TASER has:

  • Proved that a standard electric discharge from one of its stun guns won't disrupt an implanted pacemaker.

  • Set aside another product liability lawsuit -- the 45th it has either won on the merits or settled for "nuisance value."

  • Secured four orders that could generate as much as $2.4 million in revenue.

Where were you in 2004?
It's as if TASER is finally becoming the stock that both David Gardner and I had hoped it would be when we recommended it, and re-recommended it, to Motley Fool Rule Breakers subscribers. As David said in his original buy report, "There is lots of room to grow both here and abroad, and for the product to enjoy not just law enforcement deployment but greater security and military use as well."

That was December 2004. Two-and-a-half years later, a globetrotting TASER is earning supporters in France and preparing to introduce a consumer stun gun, the C2, this summer. Should you be buying now? I asked chairman Tom Smith about the risks on Friday. Let's review.

See you in court
First, we talked about lawsuits. The theory goes that a series of poor outcomes in the courts could destroy TASER utterly. With 48 product liability and wrongful death cases still pending against it, there's merit to those concerns.

But the firm's near-perfect litigating record -- I'm not counting settlements as court victories, and there have been a few -- has rightly raised the confidence level of some investors. I say "rightly" because of TASER's insurance and cash position. Smith says that TASER's policies cover up to $10 million in damages, in aggregate, during the course of a year.

Is $10 million enough? That's unknowable. TASER doesn't include a legal reserve on its balance sheet. Still, I can't envision a scenario where the stun gun maker, which has $41.5 million in cash and investments, would be forced to pay more than $51.5 million in damages in less than 12 months.

In short: Lawsuit risk is real, but muted compared with a few years ago.

Shocking demand around the globe and here at home
Second, we talked about the product pipeline. It's an important topic. I've been pugnacious when it comes to TASER's inability to improve operations with any degree of consistency. Why change my tune now?

I'm not, yet. Orders only matter when they translate into high-margin revenue and, better still, the opportunity for repeat business. But that seems to be what we have here. The Scottsdale, Ariz. police department is a longtime customer, for example.

And new relationships are forming. Smith says that a fourth order, which is worth more than $1.4 million, has come from overseas and involves neither Britain nor France, which, under new president Nicolas Sarkozy, could arm 100,000 of the country's police cruisers with stun guns.

Smith also says that the C2 consumer model will find its way to some very well-known retail stores when it hits the shelves this summer. He won't say which but, by his tone, I'm guessing that TASER is targeting more than sporting goods specialists such as Cabela's (NYSE: CAB  ) . PR-blind Wal-Mart (NYSE: WMT  ) seems more likely.

Finally, bad news may be good. One of the three remaining domestic orders, which I estimate to be worth just over $1 million, is a holdover from last quarter, when TASER failed to meet its revenue guidance. That's good news, because delayed orders sometimes disappear -- but not here.

In short: Though TASER has yet to prove it can consistently produce reasonable margins from its sales, increased demand should provide plenty of opportunities.

Touch the live wire
TASER has been a troublesome stock for investors in general and Rule Breakers subscribers in particular. I'm glad to see evidence that may be changing.

But, again, is it time to buy? A media feeding frenzy says yes. I say ... Maybe. Hey, I know how that sounds. My hedging has nothing to do with valuation. TASER may trade for 48 times this year's expected income, but the Street says the firm will grow per-share earnings by 36% a year to 2012. Growth like that demands a premium.

My concern is that TASER is the source for all its good news, and it's been a less-than-dependable source in the past. There's no way to know whether management is acting honestly and conservatively this time. If it is, now could mark the beginning of a multibagger rally. If not, well, we've been shocked before.

TASER is part of the market-beating Motley Fool Rule Breakers portfolio, which contains seven stocks that have more than doubled. Intrigued? Click here to test-drive the service for 30 days. There's no obligation to subscribe.

Wal-Mart is an Inside Value pick. Cabela's is a Motley Fool Hidden Gems selection.

Fool contributor Tim Beyers, ranked 6,458 out of more than 29,300 rated investors in CAPS, is a sucker for growth stocks and a regular contributor to David Gardner's Rule Breakers team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Tim's portfolio holdings can be found at his Fool profile. His thoughts on Foolishness and investing may be found in his blog. The Motley Fool's disclosure policy is well-insulated.


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