Taser X
TASER stock got shocked by two negative new items last week. Image source: TASER International.

Last week was not a good week to own TASER International (NASDAQ:AAXN) stock.

In a one-two gut-punch of bad news, TASER learned first that the U.S. Supreme Court has decided not to review  an appeal filed by the village of Pinehurst, N.C., regarding use of TASER stun guns.

Pinehurst had appealed a 4th U.S. Circuit Court of Appeals ruling that its police officers used excessive force in shocking a mentally ill man five times in two minutes. The court went on to find that it was unconstitutional for police to use Tasers unless they were in immediate physical danger -- a ruling that will now stand throughout the 4th Circuit and that could limit police use, and therefore buying, of Taser stun guns.

According to data from S&P Global Market Intelligence, TASER still gets more than 80% of its revenues from the sale of stun guns, which also produce much higher gross margins for the company than do sales of its Axon body cameras for police. Yet Axon is the company's faster-growing business, and the one that feeds customers into TASER's even higher margin EVIDENCE.com data storage business.

Bad as the Supreme Court decision may sound for TASER, though, the company's other news could hurt even worse.

What bad news was that?

To wit, last week, the New York Police Department placed an order for 1,000 new police body cameras -- not with TASER, but with rival camera producer Vievu.

According to news reports, NYPD signed a five-year contract with Vievu worth $6.4 million, and extendable up to three times with three-year renewal options. (Thus, all together, the NYPD contract appears to deny TASER 14 years' worth of potential sales to NYPD.)

Cost appears to have been the deciding factor here. According to CNBC, 5,000 NYPD officers -- 14.5% of the force -- will be outfitted with Vievus, and they'll receive free upgrades on their cameras first halfway through, and then at the end of the initial contract. Crucially, Vievu is charging only $1,300 per license on the deal, an apparent 70% discount to what TASER ordinarily charges in similar contracts. In a statement, TASER argued  that in its estimation, Vievu will make no profit on the deal, saying it sold its products "near or below cost."

Be that as it may, TASER stock that had looked to be heading toward $29 before the week began, closed out last week with a stock price well short of $23 -- down more than 21% for the week. But on the plus side, with a market capitalization that's now $1.2 billion, rather than the $1.5 billion it cost a week ago, at least TASER stock is now 20% cheaper than it once was.

But is it cheap enough to buy?

Is TASER a buy?

Valued on GAAP earnings, TASER stock currently costs 90 times the $0.25 per share it earned over the past 12 months. That's cheaper than it once was, but it still sounds a far cry from "cheap."

Looked at another way, though, over the same past 12 months, TASER stock generated $39.6 million in positive free cash flow -- which is nearly three times the amount of net profit reflected on its income statement. Moreover, as cash continues to pile up on the company's balance sheet, TASER's net cash position (cash minus debt) has swelled to the point where it now has $84 million on hand and unencumbered.

Subtract that cash from TASER's new and improved market capitalization, and the company sports an enterprise value of just over $1.1 billion, and an enterprise value-to-free cash flow (EV/FCF) ratio of less than 28. At the same time, analysts who follow the stock closely predict that TASER will grow its profits at about 30% annually over the next five years, giving the stock an EV/FCF-to-growth ratio of less than 1.0 -- a touchstone for value investors.

Personally, I take that high growth rate with a grain of salt -- especially if Vievu is now willing to bid contracts at cost to deny TASER sales. But if the analysts turn out to be right, and TASER can, in fact, grow its profits at 30% a year, then 28 times free cash flow seems a very fair price to pay for such rapid growth.

Fool contributor Rich Smith does not own shares of, nor is he short, any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 282 out of more than 75,000 rated members.

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