It's been a good year for shares of stun gun maker Taser. The stock is up more than 65%. But nobody could have predicted how well it would do on Tuesday as the gun control debate reached a fever pitch in the wake of last week's tragedy in Connecticut.
Taser's (TASR) stock soared more than 10%. The move coincided with a big wave of selling in gun makers Smith & Wesson (SWHC) and Sturm, Ruger (RGR) as well as hunting goods retailer Cabela's (CAB). The stock pulled back a bit Wednesday as the gun stocks rallied. But traders on StockTwits were still wondering if the outrage over the killings in Newtown could lead to stronger sales of Taser guns to both law enforcement agencies as well as consumers.
Note the term "old rock star." Despite Taser's big rally in 2012, shares are still well below their all-time highs from late 2004.
The company isn't immune to bad publicity. It's been targeted in numerous lawsuits by people who have been Tased by police officers. And we all remember the infamous 2007 incident at the University of Florida that gave birth to "Don't Tase me bro!' as a catchphrase. (Although in that case, it seems like people are divided as to who acted worse ... university police or Andrew Meyer, the student who was resisting arrest.) But some traders still seem bullish.
I guess that's possible. But it might be a stretch. It seems like investors are merely speculating about a lot of unknowns at this point. Will Congress really approve tougher gun control laws? Seems like an uphill battle. Will average Americans really buy more Tasers in order to use in self-defense? Dubious about that too.
As for Mace Security International (MACE)? That's a thinly traded penny stock. It has gained ground since last Friday ... but from 24 cents to 26 cents. Steer clear there.
The selling in the gun makers may turn out to be warranted but right now it's an understandable reaction to a horrible event. But investors can often be irrational. Just look at what was happening to video game companies on Wednesday.
It looks like fears of tougher regulations have moved from guns to companies that produce violent video games. Shares of EA (EA), Activision Blizzard (ATVI) and Take-Two Interactive (TTWO) were all down sharply.
Given all the emotions that are in play, some traders are skeptical of Taser's prospects.
they got lucky on one sentiment play, i dont think itll last..gun sales skyrocketing not bug zappers..
Indeed. It is odd that the supposedly efficient market waited until Tuesday to decide Taser was a strong gun control alternative play.
Ultimately, the best an investor can do is to make decisions based on fundamentals. Laws may change and it's difficult to predict what politicians will do. And when you look at the expected sales and earnings growth for Taser, it seems that buying now following the Tuesday rally may be a mistake, especially when you consider the big move the stock has already enjoyed this year.
Shares now trade for more than 30 times 2013 earnings estimates. That's probably enough reason to be wary.
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