Though we often stress the Foolish maxim that you can't time the market, the unfortunate fact is that buying any stock, even the stock of a great company, is greatly affected by when you choose to take the plunge.
Shareholders in Motley Fool Rule Breakers pick Taser International (NASDAQ:TASR) know the thrills and agony of timing all too well. Buy at the left side of that chart and sell in the middle; hey, you look like a stock-market genius. Buy in the middle and hold till today, and that's a lot of pain. With high-flying growth stocks trading at nosebleed valuations, it's all about expectations. Minor news can send them flying. It can also give them a mighty short haircut.
Shocking numbers
That's why an earnings announcement that would look good in a vacuum is sending Taser's stock price crashing yet again. The ultra-growth is slowing, and it's hitting the brakes hard. For the fourth quarter, Taser booked a 79% increase in net revenues. To give you an idea of the pace of the slowdown, Q3 net revenues were 211% better than the prior-year quarter's.
Fourth-quarter earnings came in at $0.08 per share, a 60% increase over last year's tally. Again, that looks pretty good, but it's a lot less than the 350% for Q3. It was also a couple pennies shy of what a few analysts had been predicting. If you recall, Taser's usual act has been to come in better than what the Street expects.
To be fair, the Street is a cruel master. There's plenty of news in the report that would be celebrated at just about any other company. For the year, gross margins improved 5%. Operating margin was up 14.6%, and the net margin now stands at 28%, up 10 points from last year -- though that was a drop from Q3, yet again.
Timing the future
Clearly, reality is catching up. The firm simply can't continue to grow at those ridiculous plus-200% clips that too many investors have been expecting. We've seen the writing on the wall here for some time.
As for the occasional media panics about the lethality of Taser's product, that's just noise. The preponderance of evidence seems to show pretty clearly that these devices are not that dangerous, certainly less so than bullets or a good, old-fashioned clubbing, to name two alternatives. If the firm can just convince overstimulated buyers to stop using its goods on 6-year-old kids or demonstrating them on inmates, its public image should improve.
Will competition slow Taser even further? I don't think that's likely. I've got to agree with management. Competition just doesn't exist yet, and the two firms out there scrambling to catch up are making a real mess of things. Not only do Law Enforcement Associates (OTC BB: LENF) and Stinger Systems (Pink Sheets: STIY) have no saleable competing products, they lack the medical studies, foreign studies, mindshare, and track record that Taser enjoys. They're also involved in all sorts of other stock-related nonsense -- some of it very scary -- that should be enough to keep away investors, if not customers.
I think the market for stun guns is Taser's to win or lose. That said, investors need to keep their critics' caps on. An X-26 in every purse and pocket? Please. I'll believe it when I see it. (Personally, I'll stick with bear spray or good old-fashioned lead and smokeless.) Foreign markets? Even management is cautious on this. As noted in today's conference call, foreign sales are usually subject to national or state-level approval processes, unlike departments here, which can buy all the zappers or Harley-Davidson (NYSE:HDI) cycles they want. Foreign sales are not the easy home run that American sales have been.
The Smiths still don't get it
I've said before that the biggest problem at Taser is trust. From the hapless board liability Bernard Kerik to Rick Smith's airplane shenanigans (check the proxies), Taser's managers still strike me as looking out for themselves first, and shareholders last. I don't like having to say that, as these are people I've spoken with, and they seem like nice enough folks.
But consider their trade timing. Impressive, no? How about $90-plus million worth of insider selling at recent highs -- precisely during the quarter in which the wheels come off the hyper-growth?
Unfortunately, remarks on the conference call make me wonder if they will ever get it. That money they're spending? It belongs to all the shareholders.
Why the showboating with a fancy new headquarters complete with a three-story atrium and biometric security system? "Not a lock in the place," someone bragged. Clearly, Taser insiders are pleased with the new digs. Stockholders, on the other hand, should ask themselves, "What's my payoff for the high-tech vanity of fingerprint entry and a lot of shiny glass?"
I guess I'm just old school. I prefer companies like Middleby (NASDAQ:MIDD) or Costco (NASDAQ:COST) that make do with cheap digs and concentrate on building stuff that rewards me for giving them my money.
So watch what happens to the dough. What does the money flow tell you about management's priorities? I'll consider buying Taser if and when the Smiths can prove, with deeds, not words, that they've put investors' interests first. Until then, I'm not holding my breath.
For related Foolishness, see:
- Worried about the "competition?" Read this, this, this, and this before you fret unduly.
- Of course, Taser's got issues of its own, including some recent unwanted buzz.
- Should Tasers be used on glass-wielding 6-year-olds? Does the worry make it a Rule Breaker?
Seth Jayson reminds readers that each Fool's opinion is his own. At the time of publication, he had no positions in any firm mentioned. View his stock holdings and Fool profile here. Fool rules are here. Taser International is a Motley Fool Rule Breakers pick, and Middleby is a Hidden Gem . Try either newsletter for free.
