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Taser Misfires but Still Has Potential

The stun-gun maker appeals more to venture capitalists than to individual investors.

Electric stun-gun maker Taser International (TASR) seems more of a venture capital play than a conventional stock play on the basis of company's recent earnings and news.

Earnings for the quarter ended March 31 were nothing to write home about, amounting to only 1 cent a share on $15.3 million in sales. For 2007, the company is now estimating earnings of 10 to 15 cents a share on $65 million in revenue, a far cry from earlier expectations of 25 to 30 cents a share on $70 million in revenue. As a result, there was some downward pressure on the stock, which is currently down 49 cents, or 5.72%, to $8.07.

Company executives claimed to be encouraged by other first-quarter developments on Wednesday's conference call, pointing to the fact that some 14 product liability wrongful death lawsuits were recently dismissed, inhibiting new lawsuits, which are now being filed at a reduced rate.

Also, Richard H. Carmona, a former U.S. surgeon general with a military background, signed on to the company's board, and some scientific breakthroughs vindicated earlier R&D spending. And although higher material costs took a toll on company profits, a number of bugs were worked out of its manufacturing process, hopefully reducing costs down the line.

Marketing Strategy Shift

Taser is also planning to shift its marketing strategy, following the strong reception its new pocket-sized C2 personal protector received at January's Consumer Electronics Show and the resulting favorable media coverage. The company now hopes to sell more of its products, including the C2, to individual consumers as well as to members of the "self defense" and private security markets rather than law enforcement agencies.

Several law enforcement groups have expressed concern over this change, fearing the tasers will be used by private citizens as a means of "vigilante justice," but company executives do not seem worried about police reaction, given the recent slackening of "same customer" sales to law enforcement.

The company is also planning to expand its markets overseas, particularly in France, where polls in advance of the upcoming presidential elections favor "law and order" candidate Nicolas Sarkozy. Taser expects to hire a new international VP to steward this coming expansion.

TheStreet Recommends

Taser's newest stun gun appears to be attractively priced for individual consumers, and planned follow-on product introductions, including cameras to detect and record suspicious activity, may also appeal to this market, particularly in the wake of the recent Virginia Tech shootings.

But in the wake of its earnings report, the company may appeal more to those of a venture capitalist bent than the private investor, which is why my position is smaller than usual. Taser has a bunch of scientifically innovative products that potentially address a major need: preventing more Virginia Tech (and smaller-scale) shootings. Depending on societal acceptance, the market could be huge.

At the time of publication, Au was long TASR, although holdings can change at any time.

Thomas P. Au, CFA, is a principal with R. W. Wentworth, a financial services firm in New York City. Earlier he was an emerging markets portfolio manager for the investment arm of Cigna Corp. and an analyst with Unifund, S.A. of Switzerland and Value Line. He graduated cum laude with a B.A. in Economics and History from Yale University and an M.B.A. in Finance from New York University. Au is the author of

A Modern Approach to Graham and Dodd Investing

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