Foolish Forecast: TASER Reloads

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Tic-tac-toe, investors want to know -- after "beating estimates" in its Q2 and Q3 reports this year, will TASER International (Nasdaq: TASR) shock the critics and make it three in a row this week? The stun-gun maker and two-time Motley Fool Rule Breakers recommendation reports fiscal 2007 results tomorrow.

What analysts say:

• Buy, sell, or waffle? With this morning's initiation of coverage by JPMorgan Chase, we now have a lucky number seven analysts unanimously shouting "buy this stock!"
• Revenue. On average, they're looking for quarterly sales to jump 51% to $29.1 million.
• Earnings. Profits are predicted to leap 75% to $0.07 per share.

What management says:
In my view, the biggest news at TASER this quarter (and certainly the funniest) was the company's decision to begin marketing a "new leopard-print TASER C2 and its accompanying Music Player Holster (MPH)," as my Foolish colleague Tim Beyers described the news last month. If you haven't written Tim yet with your suggestion for what songs should come preloaded on the new MPH, you can do so here.

Meanwhile, CNBC would argue that the biggest news of the quarter was Monday's announcement of a 3,000-unit sale of old-school M26 TASERs to an undisclosed location, for a similarly undisclosed sales price. As I argued yesterday, while a significant volume of business, the news didn't justify the surge in stock price that greeted it.

What management does:
What's more significant than a single order of obsolete stun guns, though, is how TASER has been improving profits through sales of its more modern X26 and C2. After a small bump in the numbers for the quarter ended in March, operating margins resumed their rise, and are now verging on 20%.

By way of comparison, that's a level of profitability three times as high as what traditional firearms makers like Smith & Wesson (Nasdaq: SWHC) and Sturm, Ruger (NYSE: RGR) boast. (And as for nontraditional personal defense firms, well, Law Enforcement Associates (AMEX: AID) and Mace (Nasdaq: MACE) both have negative margins.) So once again, TASER is in a class by itself.

Margins	6/06	9/06	12/06	3/07	6/07	9/07
Gross	64.7%	64.0%	63.8%	62.4%	61.3%	59.1%
Operating	7.9%	12.1%	15.9%	14.6%	17.5%	19.0%
Net	(15.2%)	(10.2%)	(6.0%)	(6.4%)	11.3%	14.2%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
How is TASER doing it? Through strict control over operating costs. Sales are going through the roof, up 44% year over year for the last nine months. And even though cost of goods sold (COGS) is rising even faster, TASER has kept a tight lid on its selling, general, and administrative costs, which have risen less than 10% so far this year.

Perhaps most gratifying of all, though, is where TASER is not skimping on operating costs: research and development. R&D spending, while small as an absolute number, has risen 60% so far this year, faster even than sales are rising. While some might quibble over the quality of the results of the R&D spending (yes, I'm referring to the leopard prints here), it does appear that TASER is committed to maintaining its technological lead over any would-be rivals.