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Plenty Of Zap In Taser

By Eugene Bukoveczky

Tickers in this Article: TASR

After watching a couple of videos of recent the Taser incidents on YouTube, I have to agree that getting hit with a stun gun looks like pretty nasty business. But is getting "Tased" potentially life threatening?

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If it is, that would sure be bad news for Taser International (Nasdaq:TASR) - the company that has a near monopoly on electric stun guns.

Critics Hate 'Em, Police Love 'Em
Despite numerous cases of individuals dying soon after being shocked by a Taser, so far the link between Tasering and death remains fuzzy. In the incidents resulting in deaths, pre-existing medical conditions, drug intoxication and even the controversial diagnosis of "excited delirium" have all been cited as causes of death. Excited delerium is condition where the person acts out violently in an agitated, confused state. The heart races and eventually stops beating. It is highly controversial, and not all experts agree that the condition even exists.

In 2005, there was one incident in Chicago where the medical examiner ruled a Taser was the cause of death, but even in that incident the dead man also had drugs in his system. (To read about that incident and the company's reaction, see The Arizona Republic story "Taser shocks ruled cause of death".)

The explanations have tended to rally critics of electroshock weapons, but law enforcement organizations have continued use of these devices. Despite their drawbacks, the general consensus seems to be that they remain the best non-lethal option available to law enforcement personnel today in potentially dangerous take-down situations.

Sales Momentum Looks Strong
With law enforcement constituting the main customer base for Taser, continued use should help keep the company's sales momentum going for the forseeable future. The company has already chalked up two successive record breaking quarters so far this year, with $25.9 million in sales in Q2 and an even larger $28.5 million in Q3. Consensus estimates peg the company to finish its fiscal year 2007 with almost $100 million in sales, and for an expected 25% sales growth for its full year 2008. This means success should continue for the forseeable future.

Potential Market Remains Huge
Taser has only partially penetrated its total potential market. Over the longer term, this means the odds that the company will continue to achieve above average sales growth appear well supported. According to a Q2 investor presentation posted on the comany's website, it maintains that it has only achieved a 33% level of penetration in the United States police market (to view the presentation click here).

Looking globally, the company esitmates that it has yet to touch almost 90% of the world police market, leaving plenty of room for growth over its current numbers. Indeed, it is on the basis of the international market that Taser's growth potential really looks compelling. Recently it began fulfilling an order for the French National Police force, and the BBC reported that London's Metropolitan Police are currently conducting trials using Taser's stun guns.

Valuation Is High, But Reflects Growth Potential
Given the sizable growth potential for Taser, its no surprise that the shares are currently trading at almost 40-times next years expected earnings of 35 cents per share. That might not seem like a bargain until you consider the fact that earnings are expected to grow in the 35% range over the next five years. If that level of growth actually materializes, it's not hard to imagine how the stock's price could move sharply higher in the coming years. Its also worth pointing out that since Taser's market is primarily government funded, it's essentially a recession-proof stock - something to consider in light of the uncertain macro picture now confronting equity markets. (To learn more, see Taking Global Macro Trends To The Bank.)

The Bottom Line
Tasers have been making news consistently for some time now. While high-profile Taser incidents and the debate over the safety and continued use of Tasers make for intriguing news stories, the real story for investors may be in just how much growth Taser can expect in the future. If the company's market estimations hold true, this high-profile story stock with a high price tag may turn out to be a great bargain.

By Eugene Bukoveczky

Eugene Bukoveczky is a freelance writer and investment researcher. He holds a CFA designation and has spent several decades working in the investment business in places like Toronto, New York, London and Dubai. He currently resides in Nova Scotia, where, when not writing, he devotes his time to chopping wood, growing his own vegetables, riding his bike to the store, and thinking about other ways to reduce his carbon footprint.

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