Is TASER the Perfect Penny Stock?

Low-priced stocks are often low-priced for a reason: They have significant problems to overcome. Yet for those that have fixed their problems, they may be ready to take off to the next level.

At Motley Fool CAPS, the 180,000 member-driver investor community where informed opinion is transformed into ratings from one to five stars, a "penny stock" is any stock trading under $10, and you'll find some of the best CAPS All-Stars regularly seeking out winning single-digit investments. We identify them with a penny icon, and by pairing up their opinions with companies trading for pennies on the dollar, relatively speaking, we may end up with more than just chump change.

Of course, just because a stock is low priced, that isn't necessarily enough to suggest it will have an easier time recording big gains. Low-priced stocks are often low-priced for a reason. But this week we look at stun-gun maker TASER (NAS: TASR) , whose stock recorded a stunning 26% gain on Friday after reporting stellar results and now trade at just over $8 a share.

TASER snapshot

Market Cap

$426 million

Revenues (TTM)

$100 million

1-Year Return


Return on Investment


Estimated 5-Year EPS Growth


Dividend and Yield


Recent Price


CAPS Rating (out of 5)


Source: N/A = not applicable; TASER doesn't pay a dividend

Armed and dangerous
Law enforcement is arming itself these days not with handguns but rather less than lethal options like Tasers. Where gunslinger Smith & Wesson (NAS: SWHC) reported a 2.5% drop in sales to law-enforcement agencies TASER, whose products are primarily sold to police departments, enjoyed an 18% surge in sales, up $4.4 million to $28.8 million.

Departments are probably focusing their limited resources on where they believe they'll get the most, um, bang for their buck. That's why we see thermal-imaging-camera maker FLIR Systems (NAS: FLIR) saw revenues drop 14% year over year in its government systems division . Agencies will get more use from a Taser that can also help lower litigation costs arising from the inevitable lawsuits that arise out of use of lethal weaponry.

Yet everyone seems to need to be better armed these days. Smith & Wesson shot out the lights with its earnings report, and Sturm, Ruger (NYS: RGR) was on target as well, though both gunmakers pulled back earlier this month after an analyst said it appeared FBI background checks eased up to just under 15% growth. That's below the 20% or better they had been recording , but it's a data point that sits outside the purview of TASER's target market.

I see you
Also seeing strong sales growth was its Axon line of on-body camera products, which saw a 31% increase, though when coupled with its digital evidence management system, revenues soared more than 65% from the same period in 2011 .

I always thought these were complementary services that would serve TASER well when they were first introduced and a much better use of its resources than the text-messaging service it branched off into at the same time (and that it subsequently dropped ). Having used vehicle-mounted camera systems like those made by Danaher's (NYS: DHR) Martel Electronics division over the course of 20 years in law enforcement, I agree the on-officer camera overcomes many of the limitations inherent in the competition.

A shocking result
Yet it's not as if TASER's cheap at these prices. It trades for more than 200 times its earnings and more than 38 times estimates, and even factoring in the earnings growth at 30% a year analysts are counting on, it still looks rich. If you're looking to lock and load your portfolio with some weaponry, Smith & Wesson at just 10 times estimates seems a better bet. Also, TASER's enterprise value trades at a lofty 20 times the free cash flow it generates, much higher than the 13 times Smith & Wesson goes for.

For long-suffering TASER investors, the latest quarterly earnings report is a welcome reprieve, but it seems that even this low-priced less-than-lethal-weapons maker would still cost investors a pretty penny if they want to get in at these levels. But let me know in the comments section below if you think TASER's stunning earnings report makes it worthy of scoping out a position here.

Make some change
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Rich Duprey and The Motley Fool have no positions in the stocks mentioned above. Motley Fool newsletter services recommend TASER. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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