Skip to main content

Trimming Shares

This company offered few positives during its earnings call that suggest it can turn things around in the short term.
  • Author:
  • Publish date:
Comments

Taser's TASR conference call just ended and the stock is trading sharply lower at $7.40. After you read this Alert, we will sell 350 shares and will look to scale out of our position in the near term.

Looking at the details, Taser's operating expenses were significantly higher and accounted for nearly 50% of revenue, compared to estimates of 38%, as the company invested in several new products. Gross margins, which were a concern in the previous quarter, increased 140 basis points. Plus, the company had six liability lawsuit dismissals in the quarter, bringing the total number of dismissals to 67.

However, there were few positives that suggest Taser will turn things around in the short term. For one, management said that it saw municipal budgets tightening due to the current economic environment. We were under the impression that a weak U.S. economy would not have a major impact on Taser, given its increasing international exposure, but we were quite wrong in this regard.

Also, while investing in new products could be seen as a positive, management should have outlined the costs six months ago so that analysts could have adjusted their estimates. Although Taser actually reported record high first-quarter earnings, the huge decline in the stock today is due to the consensus estimates being extremely bullish.

In the past, we've seen a few of our stocks decline after we had initiated a position -- as was the case with Flow (FLOW) , Xoma (XOMA) and Oilsands Quest (BQI) -- and being that our thesis was intact, we used the opportunity to average down. These moves resulted in solid gains for investors who had the patience to wait things out.

As for Taser, the situation is a bit different. The company is levered to the economic slowdown in the U.S., and management has done a poor job communicating with analysts. That said, we will look to sell our remaining position shortly and will move on from this terrible call.

Frank Curzio is a research associate at TheStreet.com.

TheStreet.com is a publisher and a registered investment adviser. TheStreet.com Stocks Under $10 contains the authors' own opinions, and none of the information contained therein constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. You further understand that the Stocks Under $10 Investment Team will not advise you personally concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent any of the information contained in TheStreet.com Stocks Under $10 may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

Past results are not necessarily indicative of future performance. Investing in the stocks chosen forTheStreet.com Stocks Under $10 model portfolio is riskyand speculative. The companies may have limited operatinghistories and little available public information, and thestocks they issue may be volatile and illiquid. Trading insuch securities can result in immediate and substantial losses of the capital invested. You should use only risk capital, and not capital required for other purposes, such as retirement savings, student loans, mortgages or education. As an editorial employee of TheStreet.com, Curzio is restricted from owning individual securities other than stock or options in TheStreet.com, Inc.

-----------------------------------------------------------Visit the TheStreet.com Stocks Under $10 site (available to subscribers ONLY) by clicking here: http://www.thestreet.com/k/su/index.html

To view TheStreet.com Stocks Under $10 portfolio on theWeb, click here:http://www.thestreet.com/k/su/portfolio.html

For customer service on your account please visit:https://secure2.thestreet.com/cap/selfserve/

-----------------------------------------------------------

(c) 2008 TheStreet.com, Inc., 14 Wall Street, 15th Floor,New York, NY 10005, Attention: Customer Service Department