It Takes More than an Upgrade to Drive Interest in a Stock
Thursday, October 27th, 2005
By George Leong, B.Comm. for Profit Confidential
TASER International Inc. (NASDAQ/TASR) — a maker of stun gun devices — surged 19.41% to $6.52 on October 24 followed by an upside break of $7 the day after. An upgrade from Jefferies & Co. to Buy from Hold drove the buying frenzy in the troubled company that is facing multiple lawsuits relating to the safety of its stun guns. The company received some good news after a lawsuit in Arizona was dismissed and a pending lawsuit in Indiana was dropped.
The buying action has been heavy, but TASER is not yet home free, as it continues to face multiple lawsuits. TASER is a trading stock and should not be viewed as a longer-term investment given the ongoing litigation. If you have made some money trading TASER this week, take your profits.
Speculators are hoping the stock can rebound back to its December 2004 52-week high of $33.45, but, as far as I’m concerned, the stock, despite being down over 80%, remains overvalued.
The allegations regarding the safety of the stun guns will dog the stock. Also the valuation is excessive. TASER trades at an overvalued 54.92x its estimated forward FY06 EPS of $0.12. The PEG of 5.46 reflects a stock that is trading well above its projected growth rate.
With $18.47 million in cash, an unfavorable ruling could easily push the company into a financial crisis. The reality is that TASER is facing negative revenue and earnings growth. The recently released Q3 was not what TASER and shareholders had hoped for. Lackluster sales drove a huge decline in Q3 earnings to below $0.01 per share versus $0.11 the prior year. Year-over-year sales plummeted 38% to a dismal $11.7 million. FY06 sales growth is estimated at 23.4%, but I doubt that will materialize unless things take a dramatic turn at TASER.
TASER remains in troubled waters, and it will need more than a rating upgrade to drive interest. So, unless things change at TASER, you should take your trading capital somewhere else.
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.



