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.