It's often a smart idea to watch major events and see how they might affect consumption. After the Trayvon Martin tragedy, "neighborhood watchmen" and others trying to protect their neighborhood and households might not carry a gun anymore and replace it with a Taser. With guns, the end result is too brutal. Tasers will likely replace guns in a lot of households.
"Taser" is a trademarked name from TASER International (TASR). The Taser is the only kind of stun gun that can be used at a distance (they can be used from a maximum of 15 feet to as close as direct contact). All other stun guns can only be used at direct contact. Tasers are effective over clothing, and they can hit any part of the body to be effective.
TASR has a monopoly on Tasers and they are patented worldwide. Tasers are legal in most states, and you don't need to have a license to own or use one.
While I have no doubt that the Martin tragedy will make people look more negatively at guns and more positively at Tasers, the question is by how much and will it significantly improve the company's sales? TASR stock hasn't gone up since the Martin killing, and maybe this is a situation that Wall Street hasn't connected the dots to yet.
Since 2008, TASR's sales growth has been pretty flat with sales for the years 2008, 2009, 2010, and 2011 at $93M, $104M, $87M, and $90M, respectively. 2010 and 2011 have been particularly tough for the company as gross margin % has declined. The gross margin for those four years are 61%, 61%, 52%, and 49%, respectively. Net income for the company for those four years has been about $4M, $0, -$4M, and -$7M, respectively.
However, gross margin and the net loss for 2011 was affected by a one-time excess inventory charge of $3.7M because of unexpected success of new products, which slowed down sales of the older models. After considering that charge, gross margin improved slightly in 2011 compared to 2010. Sales also increased slightly from 2010 to 2011, which appears to be a sign of things to come. Not only are the newer models better, but a Taser with a lot of use, especially from law enforcement officers, only lasts about five years before it needs to be replaced. This makes satisfied customers a lasting revenue source.
The company has a healthy balance sheet with no debt, and a book value of $1.48 per share. Its share price is currently at $4.20 with a market cap of $233 million. For Taser to start generating decent returns for its shareholders, it will need to start generating profits of an additional $60 million a year over 2011 sales, to total $150M per year in sales. That will generate about $20 million per year in profits.
A big part of making this growth happen is more worldwide expansion. The company already has international patents, it just needs more recognition. 80% of the company's sales are in the US, and 20% are international. Its international sales are mainly in richer, established countries like the UK and Australia, the two countries it gets most of its international sales from.
Taser use is increasing among law enforcement. 16,000 law enforcement agencies in the US use Tasers, and approximately 500,000 officers in the US carry a Taser. Officers can use Tasers to subdue a fleeing suspect. Taser has cemented its practicality in law enforcement, next it will become more common used tool for self defense in the household.
The firearm and ammunition industry is $4.1 billion a year. Gun purchases have reached record levels. If just 1% of that industry shifts over to Taser purchases, that's an extra $41 million in gross sales, or about a 25% increase from 2011 sales for Taser.
Although it will take the company a few years to reach the $150 million in sales number, it's currently a safe investment. With its patents and its established law enforcement base, there isn't much downside risk but lots of upside potential. At the current low share price, any significant increase in sales, say a 10% increase to $100M, will have an equal impact on the share price.
Trade recommendation: Buy
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.