Motley Fool Rule Breakers
First, fellow Foolish contributor Tim Beyers took a look today at Taser's legal exposure to wrongful death suits and found good news.
Second, Taser announced yesterday that the Major City Police Chiefs Association, the Major County Sheriffs' Association, the National Sheriffs' Association, and the FBI National Institute Association have resolved that "electronic control devices" -- including Tasers -- offer safety for the officers and their suspects.
The support is a boon for Taser; the media has been a ready conduit for accidental-death claims against the company. Given the choice of guns, shotguns, choke holds, nightsticks, dogs, and other weapons police have at their disposal, this observer would prefer to see them using Tasers. Am I being unreasonable?
You may have to work a little harder to find good news in the second-quarter results Taser just announced, but it's not entirely absent. As you might expect, the company's press release includes links to four studies on Taser's website regarding their weapons' effectiveness. It's a necessary addition as the company fights vigorously in court to defend its product. Shareholders have a right to know why the company is so confident.
How expensive are the company's court battles? While the company hasn't specified the cost for legal expenses or public relations campaigns, last year's second-quarter sales, general, and administrative expenses were $3.4 million; they rose to $7.5 million this quarter. Fools should also note that the company moved into a new manufacturing facility and headquarters, which may have contributed to the increase. Nonetheless, it's a significant cost hike for a company with only $13.2 million in revenue this quarter, down 19% from the year-ago quarter.
So where's the good news? Well, sales were $3 million higher than the first quarter. Despite the aforementioned expenditures, the company also reported net income around $500,000, a modest profit margin of 3.8%.
A Foolish final shot: Exactly one year ago today I wrote about Taser. At the time, TheNew York Times
My mistake at the time was anticipating neither the company's expense in defending itself from these claims nor the potential sales slowdown due to negative press. Look at this one-year chart. The stock is down 35.4% over the last 52 weeks, and margins aren't quite what they were. As investors, we should note that the company's sales (and accordingly, margins) might have a lumpy pattern, since most of them depend on successful contracts with various cities, counties and government agencies -- preferably the big ones.
Taser is a strong company with increasing international growth. However, with all its legal battles and bad press, Foolish investors may rightly wonder when its profitability will return in a meaningful way.
Fool contributor W.D. Crotty does not own shares in any of the companies mentioned.