Why TASER Is So Tough to Own

In May, Motley Fool CAPS investor MK3A2MC captured why TASER International (NASDAQ:TASR) can easily frustrate its own shareholders.

"The stock could go up, even double or triple again," our Fool wrote at the time. "However this stock is far to unstable to be taken seriously. Its performance hardly reflects anything to do with any real indicator. Essentially in proportion to how radically it has been traded." [Emphasis added.]

Shares of the stun gun maker are down more than 40% since.

The shocker
But the business is holding up well, despite a global slowdown that's likely to put a lid on most municipal spending. CAPS investors consider such progress a reason to be bullish:

Data current as of Dec. 1, 2008.

"Gaining worldwide acceptance with recent international news of large sales to UK, France, Australia, Ireland, and Korea will opened [TASER]'s door to a whole new level of sales in the coming quarters. Other countries will follow suite. Add that to no debt, new products debuting in 2009, little to no competition, gives this stock 75 thumbs up in my opinion," wrote CAPS member BigBang12 in early October.

That's mostly been true. I say "mostly" because TASER took 50,000 volts to the income statement in the most recent quarter. CEO Rick Smith told investors he'd use the firm's sturdy balance sheet to invest on the cheap during the downturn -- a smart strategy by historical standards.

Perception: more dangerous than reality
Yet TASER has a massive perception problem, no thanks to conflicting safety claims. 

On the same recent day that TASER announced an order from the Los Angeles Police Department, the government of the United Kingdom agreed to purchase as many as 10,000 stun guns -- an order that could be worth $12 million, Bloomberg reports. TASER parties, meanwhile, continue apace. Local TV station WBIR is reporting new hosts in eastern Tennessee.

I'd call that stunning business momentum, if not for the highly publicized changes in how Las Vegas' metro police department trains its officers to use the TASER. Officials no longer ask cops to be shocked during training. The implication? Metro doesn't want its officers to be injured. (At least three have been, the Las Vegas Sun reports.)

TASER, for its part, maintains that its devices are safe, citing scientific studies to back its claim. Certainly, they're a whole lot safer than a bullet. And it's not like TASER's stun guns are the first so-called "nonlethal" weapon to face scrutiny. As of 1995, the American Civil Liberties Union documented 26 police actions involving pepper spray that resulted in the death of a suspect.

To be fair, Amnesty International says that more than 10 times that number have died after exposure to a TASER. But that's a somewhat specious claim: Death after exposure isn't the same as death because of exposure.

Lawyers are debating the latter in the case of Robert Heston, who died after being stunned in a 2005 police action. A jury ruled in June that the TASER technology was at least 15% responsible for his death. A judge has since thrown out $5.2 million in damages awarded in the case without overturning the ruling itself. TASER is appealing.

How this bear growls ...
Thus the problem. Even if TASER wins $12 million in orders from the U.K., Mr. Market doesn't like uncertainty or perception problems. And when he encounters them, he's prone to sell.

That's why, when analysts say that tech stocks could go lower, Mr. Market hands us intriguing deals like these:

Source: Motley Fool CAPS.

It's also why, in February, Cisco (NASDAQ:CSCO) CEO John Chambers sounded reasonable to some when he blamed a tech downturn on bearish chatter by the chinwags at CNBC: "I think we are actually talking ourselves into this [economic] slowdown. Over the last three or four months, I felt pretty good about business until I got on the treadmill -- and then I quit early because of the pessimism that exists in the market."

Um, Mr. Chambers? You've seen the latest from the National Bureau of Economic Research, right? Perception, meet reality.

TASER has the same problem, but in reverse. We question its veracity because of safety concerns, lawsuits, bad press, and so on, even if many of the questions have already been answered or are unfair.

TASER is a rebel with a cause not enough bulls care about. In the end, that makes it a tough Rule Breaker to own.