Taser International: All Eyes On Supreme Court

| About: TASER International, (TASR)

Summary

The U.S. Supreme Court is considering a case that could strike down laws banning the private ownership of stun guns.

It is illegal for citizens to own Tasers in five states and the District of Columbia.

Jurisdictions that currently ban all private stun gun ownership include New York State, Massachusetts, New Jersey and the city of Philadelphia.

Taser’s revenue has already been growing dramatically without those markets.

Sales of firearms and other weapons have been growing because of hysteria about gun control and terrorism.

Stun gun maker Taser International's (NASDAQ: TASR) sales and share price could get a boost from an unlikely source later this year: the United States Supreme Court. A case that could strike down state laws against the ownership of stun guns is before the nation's highest court.

It is currently illegal for private citizens to own Taser's signature product, its electric stun gun, in five states (Massachusetts, New Jersey, New York, Rhode Island and Hawaii) and the District of Columbia. A case called Caetano v. Massachusetts could change that and allow Tasers to be sold in those jurisdictions.

The defendants are arguing that the right to bear arms granted by the Second Amendment applies to tasers and other non-lethal weapons. The case concerns Jaime Caetano, a Massachusetts woman who was convicted of violating a state law banning privately-owned stun guns. Caetano appealed to the Massachusetts Supreme Judicial Court, which upheld her conviction in March 2015 and ruled that the Second Amendment does not apply to stun guns.

Caetano's appeal is before the U.S. Supreme Court right now. The SCOTUS Blog reported that the case was distributed to the justices on January 19, 2016. That means a ruling in the case could be made public by this summer. If the Court rules in Caetano's favor, the state laws against private stun guns and similar bans in cities such as Philadelphia, New Orleans and Baltimore would be history.

The recent death of Supreme Court Justice Antonin Scalia could have a major impact on a Caetano decision. Scalia was the author of the game-changing Heller decision, in which the court acknowledged that the Second Amendment grants Americans a constitutional right to own weapons for self-defense. Scalia's demise makes a ruling against Caetano more likely, and it increases the possibility that the Court will not be able to make a decision because the body is now evenly divided between liberals and conservatives.

Taser's Dramatic Revenue Growth

Obviously, Taser International - the company that invented the stun gun-would be the biggest beneficiary of a favorable ruling. The court's action could boost Taser's already dramatic revenue growth.

The charts show us that Taser's TTM revenue grew by $30.94 million between third quarter 2014 and third quarter 2015, rising from $157.73 million in September 2014 to $188.67 million a year. This makes for a growth rate of a little over 16%, which is quite impressive for a small, specialized tech company.

Unfortunately, this did not translate into an increase in income. Taser's income actually fell during the third quarter, dropping from a high of $25.95 million in June to $19.91 million in September. In contrast, Taser's cash from operations did rise during the period, going from $40.44 million in June to $43.11 million in September, which indicates a slight increase in sales.

These figures show us that Taser's sales are already increasing even with laws banning its products on the books in five states. So it is quite easy to imagine Taser's sales going up if stun gun bans get struck down.

Taser's customer base would certainly grow if the Supreme Court rules in Caetano's favor. New York State has around 19.75 million people, and it contains the nation's most populous city, New York City. Since the Big Apple is famous for its street crime, New York would be a natural market for Tasers.

So Is Taser a Good Investment?

Not surprisingly, readers will want to know if Taser is a good investment. The answer is yes if you are looking for a low-priced play in the weapons sector. Recent media coverage indicates that firearms producers' share values and sales are going up because of fears of federal gun control regulations and hysteria about terrorism.

For those who want to take advantage of this trend but do not want to invest in manufacturers of deadly weapons, Taser is a good alternative. It did reward investors with a return on equity of 14.42% and a profit margin of 3.02% during the third quarter. More importantly, Taser is fairly cheap when compared to guns such as Ruger - its shares were trading at $15.53 on February 5, 2016.

The Caetano case shows why investors should pay attention to the whole newspaper and not just the business section. Sometimes the general news articles contain important information that can affect the value of interesting companies.

Taser investors should pay attention to the news about the Supreme Court. The justices might increase their company's potential market with one ruling later this year.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.