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Backing Up The Truck On Byrna Technologies

Jan. 04, 2022 2:36 AM ETByrna Technologies Inc. (BYRN)27 Comments
Patrick Doyle profile picture
Patrick Doyle
6.95K Followers

Summary

  • I think the recent price weakness gives investors a great opportunity.
  • Insider buys and a share buyback offer some clues as to what the people who know this company best think about it. We should follow their lead and buy.
  • I expect the company to continue its tradition of under-promising and over-delivering on revenue growth.

Burglar breaks into a residential building

sestovic/E+ via Getty Images

Happy New Year, dear readers. I think we need to talk about Byrna Technologies Inc. (NASDAQ:BYRN). Since I switched to “neutral” on the shares less than three months ago, the stock has lost

This article was written by

Patrick Doyle profile picture
6.95K Followers
I'm a quant investment newsletter writer who marries fundamental analysis with the latest research in momentum. Over the past few years, I’ve developed a piece of software that helps me track the level of optimism and pessimism embedded in stock price. I seek to challenge the assumptions embedded in price by profitably exploiting the disconnect between what the market thinks and what is a likely outcome. I invest in those companies that have a greater than average chance of giving us all a surprise in the next few months.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BYRN either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (27)

T
Good write up as usual, thank you sir. Your backing up the truck inspired me to do some practical research. The share dilution has been a trend not an exception. Since 2015 they have increased share count by: 7.15%, 8.55%, 5.48%, 63.69%, 9.62%, 22.46% and 63.39% for the TTM. The buyback could be a signal to the end of that trend, but I need to see more than one dot to call it a trend. This is an interesting company but I struggle to find anything that resembles a potential moat.. If you go on AMZN and look for pepper balls, the projectiles they shoot, Live X (a competitor) is the top brand sold. Dug in a bit more and turns out they shoot the the standard .68 caliber paint ball that left whelps on me as a kid.
I also don't see any barrier to using a regular paint ball gun with these pepper pellets. I do think their products make a lot of sense but I wouldn't be surprised to see a clone with the ability to produce at scale take this market. At the end of the day one of the paintball companies could easily replicate their pistol and produce their own pepper balls. The armored back pack is interesting, but one with armor starts at $500 which is a bit rich. Hate to be a negative Nelly but I typically approach stocks with Munger's inversion mindset so the analysis tends is centered around "what's would make this investment fail". All that said I do see this a a very practical product with huge potential demand. My investigation will be around Byrna's ability to execute at scale, differentiators, with a keen eye on dilution and stock compensation. Food for thought:
paintballic.com/...
Patrick Doyle profile picture
@Theta Compounder Hi and many thanks for the very thoughtful comment. It seems I'm a bit more optimistic about the buyback, but I'll concede that one data point does not a trend make.
It's also interesting to think about moats, what would be involved in starting up a competitor in this space (byrna.com/...). I'm not sure about that, and am keen to talk to management about the issue. I just know that they're introducing a host of other products (tailfins, projectiles for shotguns etc.), and that may present to them something like a moat. It's still early days, so I'm expecting things to remain relatively choppy.
Anyway, thanks again for the comment and take care, and all the best of 2022 and beyond.
PD
bengalesq profile picture
Cheap can get cheaper. No profits. Growth is great but growth no profits seems like it will be first on the chopping block when the market goes pop.

www.paintballruinedmylife.com/...

This is silly. They are selling paintball guns. I played for 20 years (it's a blast) but good luck getting it armed and ready for home defense. Also, better off just buying something like the above. So many more shots with the auto hopper and larger compressed air tank (2k shots vs 60 in the tank and 200 in the hopper with pods can carry 1k). Real pball guns are cheaper, funner, and better than this (or at least equal) in terms of home defense.

As a business, it doesn't seem to be making money.

Silly sht can make money - no doubt on that. Pet rocks, etc. Just not willing to buy the lottery ticket here. Thanks as always for the read.
Patrick Doyle profile picture
@bengalesq Hi and thanks for the comment, and you're welcome for the read.
I agree with you that growth is nice, but we need profits. The thing is that they've driven their loss from $11 million to ~$80 thousand in a year. I always avoid companies that grow the top line while the bottom line struggles. That isn't the case here, and the (small amount of) evidence so far suggests that the link between top and bottom line growth is intact.

I also used to indulge in paintball. Maybe my gear was a bit too cheap, but it didn't have much in terms of reliability. Byrna also launch chemical irritant rounds at you, which can put a damper into your day. Anyway, more importantly it seems that "($43,000,000/MSRP per unit)" Americans seem to disagree with you.

I think another potential future for this company is as a "taser adjacent" or "taser replacement." for law enforcement. This is a long sales cycle, though. Alternatively, they might be bought at some future date by a SWBI or RGR or somebody else my pre-coffee self can't think of.
bengalesq profile picture
@Patrick Doyle it's a 68 caliber round. Literally the exact same and interchangeable with paintballs. They in fact are paintballs. I looked at all the rounds. You could fire them just the same from any paintball gun. The old guns used the same air they use here also ... Meaning the small CO2 cartridges. If you really wanted to you could shoot the pepper rounds from paintball guns. Some kids used to freeze the rounds and then use them to shatter bus stop glass around the city. Put marbles in there and you have a real weapon.
Patrick Doyle profile picture
@bengalesq Hi again. Ok, so the comparison with paintball guns doesn't make a great deal of sense for a few reasons.
1) The Byrna is small enough to carry on your person, in a glovebox, in a purse. Very challenging to walk around with most paintball gun configurations, including the one you linked to.
2) Do you live at a dive shop? or at an actual paintball gun range? If you don't, you may find the need to reload that HPA a bit tiresome. The CO2 cartridge, by comparison, is pretty convenient.
3) Byrna's CO2 cartridges don't start to leak until you first pull the trigger. That lack of leakage means that you know it'll be ready to fire when you need it to fire. This capability doesn't exist with paintball guns (even ones charged with CO2 cartridges), which start to leak the moment you screw it in. This puts the "paintball defender" on the horns of a dilemma. They can ask a potential assailant to patiently wait while they screw in a fresh cartridge, or they can hope that the blasted thing still fires. That's a bit too much risk for most people.

Thanks for the comment and take care.
PD
Snids profile picture
Snids
04 Jan. 2022
The "crime wave" theme that seems to be hitting headlines lately could be a nice tailwind for the year as well. Thanks for the article.
Patrick Doyle profile picture
@Snids It's tragic, and I agree with you. You're very welcome.
WD216 profile picture
After holding for a year and a half, I sold all my shares a few months ago when it became apparent that their sales to law enforcement were not materializing. I was expecting them to develop into a Taser like company and instead I found I was getting a company that sells products on Amazon.
Patrick Doyle profile picture
@WD216 That's a fair point. The future isn't written yet, though...and the sales cycle into law enforcement is notoriously long. They're a conservative bunch. It'd be interesting to try to track down how long it took tasers to be accepted back in the day...
I
Thanks Patrick. I always follow your articles about BYRN. But do you think this dilution is common for small/growing companies as Byrna?
Patrick Doyle profile picture
@InvestMachine Hi and you're very welcome. Happy that you follow my stuff on this. Anecdotally I'd say yes in answer to the question about dilution. In my view, the two important questions are: a) does "authorized share purchases" translate into "purchased shares", so we'll need to track the cash flow statement on that one. b) More importantly, does the share buyback more than compensate for share expense. If we're draining the pool with buybacks while filling the pool with generous share compensation, we're gonna have a problem.
I think the other thing to keep in mind is that a company with a cheap stock is going to have to dilute a hell of a lot more to compensate skilled management. I don't have numbers on this, just a gut feel.
Anyway, take care and Happy New Year.
PD
j
Too much dilution in the past almost always signals too much dilution in the future. I'd stay away from any company that dilutes this much UNLESS I'd know they had a blockbuster new product introduction forthcoming shortly.
Patrick Doyle profile picture
@jrnpanther That's a fair point. My view is that they're going to have a monster year. I'm also of the view that they're acknowledging the dilution to date with the buyback. The question is whether they drain the pool with the buyback, while simultaneously filling it with stock based compensation. Please stay tuned.
Oakwood Partners profile picture
@Patrick Doyle the market appears to believe dilution is an overarching issue that won’t be resolved with the buyback. Maybe management will figure it out too.
Patrick Doyle profile picture
@Oakwood Partners LP Hi and thanks for the comment. What makes you write that? I don't think the buyback's started.
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