The Motley Fool Rule Breakers growth investing service has been making buy and sell recommendations for members since 2004. Now it's time for those members to help shape the service, through the "Take That!" contest currently underway. Readers nominated the companies they thought were no longer Rule Breakers and that should be sold from the scorecard, and the five best bear cases are now up for a vote. The winning (losing!) stock will be revealed in the next issue of Rule Breakers -- and quite possibly a sell recommendation to go along with it!

Taser (NASDAQ:TASR) has twice been recommended to subscribers of the Rule Breakers service. Lead analyst David Gardner was first to single out the stun gun maker in the December 2004 issue. I then re-upped his call in September 2005. We've both lost to the market since; me by 8 percentage points and David by -- gulp -- 83 percentage points.

So is it time to cut our losses and sell, or hunker down and ride the short-term haircut to long-term outperformance?

We're bullish!
When David first picked Taser, he contended that the stock had a "wall of worry" to climb because of negative press and that, as skeptics became converts, returns would accelerate: "I find dramatic headlines reporting Taser deaths well out of proportion to the comparative good of this weapon being used in place of guns. This kind of disproportionate reporting also adds bricks to the wall of worry."

I agreed. In my own write-up I suggested that the extraordinary skepticism was building like well-shaken bubbly held back only by a straining cork:

Institutions own only 22% of the shares outstanding at present. And more than 30% of the shares available to trade -- otherwise known as the float -- have been sold short. That's remarkable downward pressure on the stock. As the hype dissipates, and as Taser's financials continue to improve, that pressure will be relieved.

Moreover, we both believed that Taser, with weak competition from Law Enforcement Associates (AMEX:AID) and Stinger Systems, had ample room to grow. As David wrote:

Taser received its biggest prospective order yet when the city of Houston -- fourth-largest in the U.S. -- approved a contract that would arm all of its patrol officers with [Taser pistols]. The deal is for $3.7 million worth of product to be delivered in the fourth quarter. Of the top six U.S. cities, Taser now has arrangements with two (Houston and Phoenix).

In fact, I argued, the opportunity seemed so huge that years of 30% to 40% growth seemed at least possible, and perhaps likely. That, in turn, led me to conclude the shares had big potential:

Take 30% growth out 10 years from the estimated $56 million Taser will make this year [2005] and you arrive at $772 million. That total becomes $1.62 billion if you figure 40% annual growth. Split the difference -- 35% growth -- and you're at $1.13 billion. Taser was worth $543 million as I wrote this report. Were the stock to trade for just one times sales in 2015, it would still be at least a double from here. But that's conservative. Taser is a high-growth company with unique products, loyal customers, and patent protection. It's much more likely to be trading closer to three or four times sales. And therein, Fool, lies the multibagger.

Or, in David's more elegant parlance:

There is lots of room to grow both here and abroad, and for the product to enjoy not just law enforcement deployment but greater security and military use as well.

So far, the evidence doesn't favor our assessments. Take 2005 revenue, for example. It came in at just $47.7 million, well below earlier estimates. Management's hyperactive hyperbole hasn't exactly been a bullish sign, either.

No, we're bearish!
It's for those reasons and more that Taser has earned its share of nominations in the "Take That!" contest. Perhaps the most lucid argument came from crca99. He writes that a sale of Taser fits with our published selling guidelines, which include:

  • A rational case for selling.
  • A better place for the money currently invested in the stock.
  • A change in the original thesis.

The change, of course, has been a dramatic increase in litigation expenses.

Crca99 argues that Taser's stock won't recover "until litigation wends its way through the courts and the bottom line rebounds to show 15% growth," which could occur in one to three years. And while net income improved six-fold, from $300,000 to $2.4 million in the latest quarter, that number is down from $6.1 million in 2004, and there are still unresolved product liability lawsuits.

So which one is it?
Community sentiment is mostly bullish. According to Motley Fool CAPS data, Taser is a three-star stock (out of five possible stars); 204 CAPS players have rated it an "outperform," while 25 have rated it "underperform" vs. the S&P 500. Analysts are mildly bullish. According to Thomson data, Taser has a mean recommendation of 2 on a 1-to-5 buy-to-sell scale.

So ... which one is it? For the full bull and bear Taser arguments, and to read the cases against each of the five finalists, click on over to Rule Breakers Central. If you're not a member, you can access the service, read all of our recommendations, and cast a vote in our contest -- all with a completely free, no-strings-attached 30-day trial.

Sock it to your portfolio with related Foolishness:

Fool contributor Tim Beyers didn't own shares of any of the companies mentioned in this story at the time of publication. Get the skinny on all of Tim's stock holdings by checking his Fool profile. The Motley Fool's disclosure policy is a rebel with a cause.