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Why Wrap Technologies Stock Dropped 12% This Morning

By Rich Smith – Jun 3, 2020 at 2:34PM

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A momentum stock runs out of momentum.

What happened

The stock of Wrap Technologies (WRAP 1.70%) is on a tear. In a time of nationwide demonstrations, and sporadic riots growing out of them, resulting in mass police response, this isn't surprising since Wrap has developed a restraint system for law enforcement.

But the amount of momentum this stock has achieved certainly is a surprise. In the six trading days from the release of the video of George Floyd being killed while in police custody, to the close of trading on Tuesday, Wrap Technologies stock has doubled.

But it's falling today, down more than 12% in early trading and still down 7.1% as of 12:45 p.m. EDT.

Wrap's product line of gun, belt clips, and holsters.

Wrap's product line. Image source: Wrap Technologies.

So what

Wrap has developed a nonlethal restraint system for police. Similar in concept to a stun gun, which works from a distance, Wrap's BolaWrap gun fires an eight-foot-long Kevlar tether that, upon striking its target, wraps around and restrains the person ("like remote handcuffs," says the company's website).  

This is a weapon that the police might want to use to isolate and restrain bad actors in a demonstration, and a tool activists might want to encourage police departments to buy to restrain suspects without risking injury to either the police or the suspect. Either or both these possibilities could be enough to turn Wrap into a growth stock in times like these.

Now what

But it takes more than just a good concept to make a good stock. According to data from S&P Global Market Intelligence, Wrap Technologies stock has a market capitalization of more than $300 million, but annual sales of just $1.3 million, and (it almost goes without saying) no profit whatsoever.

Since doubling to a valuation of nearly 300 times sales, it was probably time for this stock to fall back. And today, it did.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Wrap Technologies, Inc. Stock Quote
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