A few days back, I suggested that the startling rise in TASER International's (NYSE: TASR) share price looked a wee bit overblown. Sure, the company had just announced that it would have an additional $3.9 million in sales to its credit in fiscal Q1 2011. But by my calculations, all that extra revenue would probably produce no more than $7,000 or so in extra profits for the company.
As it turns out, I was too optimistic.
Shocking news! TASER's unprofitable!
Calculating the profits TASER could earn on nearly $4 million in extra sales, I had assumed the company could at least apply its historical 0.18% net profit margin to these sales. After all, if low-tech gunsmith Sturm, Ruger (NYSE: RGR) and mundane munitions makers Olin (NYSE: OLN) and Alliant TechSystems (NYSE: ATK) can all earn decent profits from their operations, you'd think high-tech TASER could eke out a profit from its whizbang weapons.
Instead, TASER's earnings report showed:
- A 26% drop in quarterly sales, year over year.
- Weakening gross margin, down 730 basis points to 51.7%.
- Selling, general, and administrative savings that fell far short of the reduction in sales.
As a result, TASER booked both operating and net losses for the quarter. For the year, TASER ended up losing $0.07 per share -- not even a 0.18% net profit margin, but an out-and-out loss. (For the record, TASER also lost money from the perspective of free cash flow. Despite showing a small rise in operating cash flow, and cutting capex to the bone, the company ended the year with free cash flow likely around negative $3.3 million.)
Strike 1 … strike 2 … home run?
But could this current trend reverse itself? Perhaps. Management does have good things to say about the reception its new "X3" repeat-fire stungun is receiving. Apparently, the Arizona Department of Public Safety just maxed out an order for 1,000 units. (TASER calls it "the largest single purchase of TASER X3 ECDs.") At nearly twice the price of TASER's lower-tech devices, the X3 could give a powerful punch to profitability if widely adopted.
For now, though, it's just $1.8 million worth of revenue to a profitless company.
Think I'm wrong? Want to prove it? Click over to Motley Fool CAPS and go on record in favor of TASER -- then add the stock to your Fool Watchlist, to make sure when the good news arrives, you're first in line to hear it.
