Stock Grader: Taser (TASR) Shares Climb as Civil Unrest Erupts

by Ryan Fitzwater, Director of Research, The Oxford Club
Policeman

You cannot turn on the TV today without being blasted with news about the civil unrest taking place here in the U.S.

National controversy has been focused on two incidents involving lethal police force that led to the deaths of Eric Garner and Michael Brown. And with two New York City police officers shot and killed point-blank this past weekend, things have gotten even more heated.

This has brought the conversation about officer-worn cameras front and center, as some citizens and politicians are demanding greater police transparency.

As a result, nonlethal weapons maker TASER International (Nasdaq: TASR) has attracted the attention of law enforcement agencies and police departments, as well as Wall Street.

Officer-Worn Cameras

TASER is most known for its Taser brand electroshock guns that are currently carried by almost 50% of the U.S. domestic police force. That’s around 390,000 police officers.

But what has sent TASER shares soaring over the past few months and weeks is excitement around its AXON camera line.

As you can see in the chart above, shares of TASER are on a tear this year, up over 60%. And shares jumped more than 30% following the shooting of Michael Brown in August.

Due to lack of video evidence surrounding the unarmed teen’s death, politicians, including the president, have called for and introduced legislation that would require police officers to wear body cameras.

President Obama issued a proposal on December 1 that included a $75 million allocation of federal funding for a 50% matching program over three years for state and local police agencies to purchase 50,000 body cameras. And U.S. Rep. Emanuel Cleaver (D-Missouri) introduced legislation this month that would require all police officers to wear body cameras.

That is music to TASER’s ears. Any legislation that requires or encourages police-worn body cameras will help boost demand for its AXON camera line. And that demand has already arrived.

Orders Roll In

Major cities are already taking their own steps toward police-worn body cameras. Last week, the Los Angeles Police Department announced that it was buying 860 cameras from TASER, along with a five-year subscription to Evidence.com, TASER’s video management system. And next year, Los Angeles plans to allocate funds for 7,000 more body-worn cameras.

In September, the New York City Police Department stated it would begin testing two different body cameras, one made by private firm Vievu and one made by TASER. If the NYPD jumps onboard with TASER, that would be big news indeed considering the department has more than 34,000 officers.

And today, TASER announced that the Pasco County Sherriff’s Office in Florida will purchase 415 AXON Flex body cameras and a five-year subscription to Evidence.com. As a result, shares were up close to 4% this morning.

Benefits of a Watchful Eye

Of course the benefits surrounding the use of police-worn cameras are still being studied.

Cambridge University conducted a year-long study with the Rialto Police Department in California measuring the relationships benefits between civilians and police. Their results showed an 88% reduction in citizen complaints and 60% reduction in uses of force after implementations of TASER’s AXON flex cameras.

And Arizona State University conducted a similar study using AXON cameras with the Mesa Police Department. That study revealed a 48% reduction in citizen complaints, and a 75% decline in the use of force complaints.

Both studies point to video evidence quickly resolving complaints that were brought to the police departments. Surely this is fodder both TASER and politicians will use to help push wearable camera sales and legislation respectively.

Positioned to Profit

While recent civil unrest has focused attention on the company’s body cameras, demand for its non-lethal Taser weapons remains high.

TASER is already a trusted source with law enforcement: It has established connections with 95% of U.S. police departments. Those relationships will help it leverage its AXON camera line for years to come.

As a leading player in the potentially rapid growing officer body-camera and digital evidence management space, Taser might be a great stock to add to your holiday wish list. It certainly looks attractive with police departments already buying up cameras in bulk and potential future legislation that would require police departments to have them.

But before you tell Santa you want shares of TASER for Christmas instead of a white Mercedes, let’s check on its financial health with our Investment U Fundamental Factor Test. If a solid grade shakes out, this might be a great time to pick up the stock.

Earnings-per-Share (EPS) Growth: TASER saw EPS jump 40% in the most recent quarter. Double-digit growth of this size is always nice to see.

 Price-to-Earnings (P/E): TASER’s P/E of 44.96 is well above the industry average of 15.91. Not a surprise to see a ratio this high considering the run-up in share price the company has already experienced over the last few months. This makes it pricey on an earnings basis.

Debt-to-Equity : TASER’s debt-to-equity ratio of 0.07% means it’s practically debt-free. Considering the industry is averaging a ratio over 66%, it is clearly not overleveraged one bit.

Free Cash Flow per Share Growth : In the last quarter, free cash flow increased 47.13% for TASER. And with potential demand for its AXON camera’s on the horizon, we could see free cash flow jump even higher in the next few quarters.

Profit Margins : TASER’s profit margins are a healthy 17.04%. This is well above the industry’s 6.74% average.

Return on Equity :TASER couldn’t close out the last metric with a win. Its 20.70% ROE is just a few percentage points below the industry’s 23.13% average. Close but no cigar.

While TASER is doing a great job growing earnings and free cash flow, and keeping a healthy - almost debt-free - balance sheet, it does look pricey on an earnings basis at today’s price. But with civil unrest boosting demand for its products, its future certainly looks bright.

*Why did we look at these specific metrics? Find out more here.

Fundamental Factor Test Score

B: Buy with caution (Matches four key metrics, no less)

 

Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That’s why The Oxford Club offers over a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth. For more details, click here.

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