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It is hard to believe that it has been nearly two years since the infamous web video of the, “Don’t taze me bro,” incident occurred during a John Kerry speech at the University of Florida. The incident has received a lot of attention in that time, and has even spawned T-shirts and other various fanfare mostly in support of the rebellious student. Taser International (NASDAQ:TASR), the company whose product was at the center of that “exchange,” reported second quarter earnings on Wednesday morning that showed the company fell just short of profitability. EPS came in at a loss of one penny versus estimates that had pegged Taser to lose four cents based on the handful of Wall Street analysts that cover the small cap company.

Perhaps the biggest takeaway from the results was the resiliency of sales over the last quarter. Revenue was 3.5% better than the same period a year ago, coming in at $21.8 million, even though analysts were predicting sales to fall by about 10% in the quarter. The gross margin on those better sales slipped from 64.5% all the way to 62.9%. This is a significant slip in margins, but at around 63% a little bit of margin squeezing is not a huge concern.

TASR The additional sales volume was not able to push TASR over to positive earnings because the company greatly increased research and development budgets in preparation for the release of their first new handheld Taser device in six years, the X3. The X3 was released on Monday and has the capability to fire at three different targets without reloading. There have also been improvements made to the safety and consistency of the device. The X3 will retail for $1799 but the company is offering trade in deals for older models. Taser has been working to diversify their product base as well by forging into military grade equipment and wireless devices that can be shot out of a shotgun in addition to other technology devices. Obviously, the firm is looking to grow through various products while upgrading its primary handheld Taser product.

Taser has had to deal with probably its fair share of negative publicity over the years, as with the don’t taze me bro episode. From an equity perspective, we think that Taser is slightly Undervalued at current levels, and the products unveiled so far this year could provide a nice path to growth. This is an extremely difficult time for police and other law enforcement departments to spend money, so the $1799 price tag could for each new X3 could be a tough sale right now. However, depending on how aggressive Taser wants to be they could trim their still healthy margin to drive sales higher. Our methodology rarely looks kindly on stocks that are losing money, or that are hovering around the break even each quarter like Taser does. So, that should tell you that the price has to be pretty attractive for us to recommend a stock such as Taser.

Our analysis suggest that the downside is fairly minimal, and the upside potential is compelling. As Taser could fall as far as $4.50, but with current fundamentals and significant growth potential the stock could double over the next year. There are challenges ahead for Taser that could stunt growth in the near future, but over the long term we think non-lethal force is are not going away and Taser is the household name in that industry. Because of the size of the company and the possibility (how ever remote) that the new products could flop, this stock has a speculative feel to it. The fact that the stock is down 5% in afternoon trading, after reporting a better than expected quarter, looks like an opportunity for long term investors.

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Source: Taser Me Bro: Taser International Reports Decent Quarter