Or, How Not To Pick Stocks
Imagine a world where police don’t have to kill bad guys. More importantly, imagine a world where police never kill an innocent person. No, instead of shooting a gun, police would shoot an immobilizing blast of electricity, allowing the police several minutes to secure a potentially dangerous individual and figure out what to do next almost at leisure. Taser International would like you to imagine this world. In fact, they’d like you to live in it. Oh, and they would like you to buy their stock.
Before you call your broker, there’s a lot of things you should know. First of all, the stock has been highly volatile, having traded in the last year as low as $2.02 and as high as $64.15. Just today, they lost $5 per share after a negative article in the New York Times regarding the safety of their products and today’s earnings announcements. Taser executives have spent much of the day telling any media outlet that would listen that their products are safe and their balance sheet is fine.
The safety of the product is the subject of intense debate. Taser says they have research showing the device is safe. Critics call this research flawed and anecdotal. In any event, The Sharper Image has decided not to sell the consumer grade Taser product on the basis of the NYT story.
As for the balance sheet, it may seem odd to say that the profits were too good. When a product can cost upwards of $800, there is a limited market for it. No company, no matter how well it is managed and how good its products are, can triple their revenues and multiply their actual profits by 13 every year. That’s just not possible. For the matter of simplicity, we are assuming the figures they released are actually true — after Enron and Worldcom, that needs to be said. As The Motley Fool points out, the stock is up 1600% in the last year — also a clearly unsustainable trend — and a competitor may come along sooner or later. Assuming everyone who needs one doesn’t already have one by then.
Finally, I’d like to address the fact that upper management spends a lot of time with the media, “aggressively defending” the company and it’s stock. I don’t like seeing this situation. After all, if the CEO is out there refuting news stories, appearing on television, blaming short-sellers, and threatening people who say bad things about the company, who exactly is getting the work done? My attitude is “don’t tell me, show me.” Get some bigger, unquestionably independent research that shows the product is safe and effective. Make the analysts and short-sellers rethink their positions by delivering good, solid, sustainable growth every quarter.
A world where police never accidentally kill anyone is too good to be true. Never buy a stock based solely on company hype.