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Here's Why Wrap Technologies Stock Fell Today

By Jon Quast – Updated Jul 31, 2020 at 1:56PM

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Its loss widened in the second quarter, but long-term investors should be encouraged by the company's progress.

What happened

Shares of remote restraint-device company Wrap Technologies (WRAP -0.56%) fell sharply on Friday after the company released results for the second quarter of 2020. Revenue beat expectations, but earnings came up short. The stock was down 14% as of 1:30 p.m. EDT as a result.

Wrap Technologies also announced a change at the CEO position. But this probably isn't rattling investors. Former CEO David Norris remains a director, giving him better focus. And new CEO Marc Thomas has both executive and military experience, a good background for the job.

A frustrated man lays his head on a table with a down, red stock chart in the background.

Image source: Getty Images.

So what

Wrap Technologies generated revenue of $833,000 in Q2. That's a massive improvement from the mere $59,000 it generated last year, and it was slightly ahead of Wall Street's expectations. However, the company's net loss was $2.8 million or $0.09 per diluted share.

This loss was wider than last year's and it appears investors had higher expectations, which led to the stock's fall. While management cut things like travel expenses during the pandemic, sales expenses and stock-based compensation both accelerated during Q2.

Today's drop in stock price is a rare pullback in 2020. Shares of Wrap Technologies are solidly beating the market so far this year.

WRTC Chart

WRTC data by YCharts

Now what

In my opinion, investors are wrong to sell Wrap Technologies stock on today's report. This is an early-development-stage company, and losses are to be expected. It costs money to build infrastructure and increase product awareness. The key to the company's long-term viability isn't so much quarterly profit, but rather its rate of adoption and ongoing liquidity.

Regarding liquidity, Wrap Technologies' cash pile more than doubled from last year. The company benefited from a secondary offering and exercised warrants, and now has $35.4 million in cash and cash equivalents. That's enough to fund this company for years at its current rate of negative earnings.

Also, Wrap announced many new orders during the quarter, all of which suggest law enforcement agencies see its BolaWrap device as an important tool. Impressively, the company was able to still provide training sessions and demonstrations in Q2, despite restrictions from physical-distancing guidelines. 

Considering the current public discussion regarding excessive force among law enforcement officers, Wrap Technologies' BolaWrap seems to be a product that could really take off. While I personally like other stocks better, Wrap Technologies should continue to post strong top-line growth for the foreseeable future.

Jon Quast 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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