Analysts love the shares of this electronic control device maker and expect them to rise handsomely over the next 12 months. By Anne Kates Smith, Executive Editor February 20, 2008 Who says crime doesn't pay? Shareholders of Taser International are not only hoping that it pays handsomely, but that it remains a growth industry. Well, maybe not crime exactly, but crime-fighting. Taser makes those electronic control devices -- stun guns in the vernacular -- used by police and corrections officers, the military and, now, even crime-wary consumers. Tasers temporarily disable threatening or dangerous individuals or those resisting arrest --including unruly college students disrupting political speeches, as seen in the video that went viral last September, making "Don't tase me Bro!" a catch phrase of 2007. But as much as perps on the mean streets may hate the company's devices, analysts on Wall Street love the company's shares. Most of the seven analysts who cover the stock (symbol TASR) rate it a buy or outperform; none rate it a sell. Analysts expect earnings to grow at a roughly 50% rate this year and next as Taser penetrates largely untapped markets here and abroad, with essentially no competition. "To us it's a category killer," says Steven Dyer, at Craig-Hallum, a Minneapolis-based brokerage. Advertisement JP Morgan is the latest to join the love fest, initiating coverage on February 13 with an "overweight" rating. Taser, based in Scottsdale, Ariz. logged profits of $15 million last year on $100.7 million in revenues. The Scottsdale, Ariz., company has sold more than 400,000 devices to some 12,000 law enforcement, correctional and military agencies in 44 countries. Still that's only about 35% of the domestic market and less than 5% of the worldwide market. Taser's penetration rate of the private-security, military and consumer markets is near zero. International sales, accounting for about 15% of 2007 sales should become a more prominent part of the mix this year. Agencies in some 45 foreign countries are either using or testing Taser devices. On February 11, the company announced that an unnamed foreign country placed an order for 3,000 units. As many as five countries are expected to place significant orders this year. Advertisement Consumers represent another solid growth market. Taser's C2 model began shipping in the third-quarter of '07. At this year's Consumer Electronics Show, the C2 made its debut in leopard print, red-hot red and fashion pink (prices ranging from $350 to $380) "for women who want fashion with a bite." Infomercials about the product began airing in mid-February. The C2 could generate almost 10% of company sales this year, up from less than 4% in '07, estimates Eric Wold of San Francisco-based broker Merriman Curhan Ford. Taser's challenge for now is boosting gross profit margins, which have sagged lately. The company blames higher raw material costs; cash discounts for distributors; a higher percentage of low-priced products, such as cartridges, in the sales mix; and labor inefficiencies associated with new product introductions and starting a second production shift. Taser has eliminated the discounts, negotiated price reductions with suppliers and smoothed out payroll bumps by staffing the two shifts so as to eliminate overtime. And the company hired a new operations chief, a 20-year veteran of Intel Corp. All told, analysts on average expect sales to increase 26% this year and earnings to jump 47%, to 34 cents a share. Advertisement Despite its promising outlook, Taser is not an easy stock to own if you don't have a stomach for wild gyrations tied to the headline of the moment. That was made clear in 2005 when news of a Securities and Exchange Commission inquiry sent the stock tumbling from a bit more than $30 -- a peak it hasn't seen since even though the investigation came to nothing. More recently, the stock was on a roll until last October, when news broke that a man had died after being hit with a taser at a Canadian airport. Taser says its devices have actually saved thousands of lives, by reducing risks to both law enforcement officers and suspects, compared with using guns or other, physical control methods. But use of the devices is clearly controversial. Taser is no stranger to litigation charging wrongful death or injury, but so far, some 61 lawsuits against the company have either been dismissed or decided in its favor. Still, short-sellers, who have a vested interest in seeing Taser's stock fall, account for nearly a quarter of the float -- that is, the shares available for trading by the public. Advertisement The bulls believe that investors committed to the stock long-term will be rewarded. "Do you own it for headlines or for operations? If you own it for operations -- what the company can do, I'm not too concerned," says analyst Wold. Considering the company's earnings-growth prospects, the stock deserves to trade at 40 to 45 times estimated earnings, he believes. Given his estimate of 52 cents a share for 2009, he thinks the stock, which closed at $11.99 on February 19, could reach $21 over the next 12 months. Other analysts say $17 a share is more realistic. Either way, you're looking at some pretty stunning gains.