Zack Miller
IsraelNewsletter.com
In light of the shocking event caught on camera at the University of Florida last week (sorry, but go Hurricanes!) in which a student disrupting a John Kerry stump speech got “tasered”, we’ve been hearing, reading, and viewing a lot of stuff surrounding the use of both excessive force (or not, depending how you view the situation) and the use of the Taser gun — developed and marketed by the Taser International (TASR).
[youtube=http://www.youtube.com/watch?v=AkMkGOpAF4s]
I’ll leave the analysis of the event to the New York Times , to Wired, and to The Washington Post as what to make of the incident but I thought it would be interesting to drill down on Taser’s stock after the company has received so much attention.
I remember trading (or trying to trade the stock) back when I was a hedge fund analyst in 2003. There was all sorts of positive news on the stock and what we felt to be the short squeeze to end all short squeezes. The stock rocketed up over 2000% in that year and was up another 300% in 2004. Needless to say, the small cap TASR found its way onto many institutional and retail radar screens.
TASER International develops “electronic control devices” designed for use in law enforcement, corrections and personal defense. Taser makes both a product designed for law enforcement market as well as a consumer version. The Taser products are capable of subduing an opponent by skin conduction (you actually touch it to the skin/clothing and zap) or by shooting connected probes out onto a suspect and shocking him remotely. Cool stuff and in the wake of a lot of police fatalities, local law enforcement agencies flocked to it.
TASR has seem a steep growth curve in its revenues growing 180% from 2003 to 2004. Revs have been erratic since and 2006 saw the same levels as 2004 and with a serious decline in profitability. TASR reported strong 2Q07 earnings of $.06 — in-line with consensus and off of revenuews of $26 million. TASR saw $5M in international sales which appear to have accelerated.
Jeffries and Co. , who covers the stock, expects a long-term growth rate of 40%, citing Taser’s new C2 product as expanding both domestic and international volume. There are numerous large law enforcement and consumer market opportunities out there for Taser. Jeffries thinks that TASR should be able to expand operating margins to the mid 30% range and ROIC to 50% — both pretty juicy.
For TASR to reach these goals, a lot is built-in to the Taser story. Namely,
- 25% of gun owners buy a Taser over the next 10 years
- about 20% of global law enforcement carries a Taser within 10 years
Military opportunities and new product sales are not included in Jeffries growth assumptions.
On an valuation basis, this thing is really rich when you look at its P/E — trading at 82X this year’s estimated earnings and 43x Jeffries’ estimated earnings in 2008. Too rich for me but if the revenue/earnings growth numbers are right or there’s upside with military sales, this thing gets more interesting.
Stories like “Don’t Tase Me Bro” provide a double-edge sword for the company. While police will continue to use excessive force, the idea is that Taser cuts down the ultimate number of “death-by-cop”s globally. That may be the ultimate payoff for Taser.
Disclosure: Author’s fund does not have a position in TASR although I’m contemplating buying one for all the cops in my life.
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Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC. and a former equity analyst for a leading multinational hedge fund. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email
About Zack Miller
You broke it down, bro.