Taser International Inc. shares are getting a jolt from investors as the weapon maker racks up orders and interest, but some analysts caution the stock is now fully valued.
Taser shares jumped by as much as 10 per cent on Monday and are up 125 per cent over the past year as more police departments turn to the company's namesake weapon as well as its burgeoning line of wearable video cameras for on-duty police officers. Also helping the shares are a slowdown in the number of lawsuits pending against the Scottsdale, Ariz.-based company; the court cases had been seen a major investment risk.
Still, some analysts believe the recent excitement around Taser is now built into the shares, which have doubled in the past four months alone.
"It's a great company. They have tremendous margins, they have a near monopoly in the weapons and a great new business. … I just think the stock has gotten a bit ahead of itself," said Sidoti & Co. analyst Glenn Mattson, who has a "hold" on the stock and a $16 (U.S.) price target.
The shares closed at $16.89 on the Nasdaq Monday, up $1.37 or 8.8 per cent, after Paul Coster, an analyst at JPMorgan Chase & Co., upgraded Taser to "buy" from "hold" and increased his target price to $18.50 from $17.
While the stock is expensive, trading at more than 40 times 2014 earnings estimates, Mr. Coster said the price is worth it. "We think [Taser's] uniquely strong position in a large addressable market, solid growth momentum and improving business model, justify a premium multiple," he wrote. "We like this stock, particularly on pullbacks."
Taser shares have sold off in recent weeks after hitting a six-year high of $18.52 at the end of October, when it reported record quarterly revenue of $35.2-million, up 22 per cent from a year earlier.
The stock hit a 52-week low of $6.70 in February.
The four analysts covering Taser are now split on the stock, with two recommending it as a "buy" and two a "hold," according to S&P Capital IQ.
The shares started to climb in August after a U.S. federal judge ruled the New York Police Department's controversial "stop-and-frisk" policy was unconstitutional and called for a one-year pilot program to outfit officers with wearable cameras. The ruling is under appeal. Still, the cameras are gaining popularity among police.
Taser is a leader in this technology with its "on-officer" division, which includes glasses and other wearable items equipped with video cameras to record their interactions with citizens while on call. Cameras are also available for the Taser weapons.
While 90 per cent of the company's revenues are from its Taser guns, analysts say the video business is a new area of growth.
"They are the pioneer in on-officer video, which is really starting to take off," said Steven Dyer, an analyst at Craig-Hallum Capital Group LLC, who has a "buy" on Taser and a $25 price target. "In the market overall there's not that many companies where you can paint the picture that, if this works, it could be a big, big deal," he said.
While Taser faces competition in the wearable video camera segment for police, in particular from private company VieVu and publicly held Digital Ally Inc., Mr. Dyer also likes the company's data storage software system, Evidence.com.
Meanwhile, the company continues to bring in orders for its Taser weapons. It recently announced $5.8-million in international orders as well as more sales in police departments across the United States. Canada is one of its largest markets outside of the U.S., although Taser won't disclose how many clients it has in the country.
Lawsuits continue to be a risk for Taser. Last month, the company announced it was settling two lawsuits and paying $2.3-million. It was a rare move given the company's policy not to settle cases related to police-suspect injury or death. "Exceptions are sometimes made where the settlement is strategically beneficial to the company," it said in a Nov. 27 filing with the Securities and Exchange Commission.
The company says it had 22 lawsuits outstanding as of the third quarter, which is down from 55 in 2011. Sidoti & Co.'s Mr. Mattson says cases are on the decline after Taser released a new set of detailed warnings about their weapons in 2009.
"Litigation risk will remain an issue, in our view, until all the pre-2009 cases are resolved," said Mr. Mattson, which he expects will happen next year.