When we see an uptick in violent events in the U.S., gun manufacturers like Sturm Ruger(NYSE:RGR)
and Smith & Wesson (NASDAQ:SWBI) tend to rally
. But there are also some lesser-known stocks that participate in these rallies. They fall into the non-lethal weapons category.
One such company is Tempe, Arizona-based Wrap Technologies (NASDAQ:WRTC) whose innovative BolaWrap device offers a safer alternative for law enforcement. The stock has grabbed investors' attention this year amid calls for police reform in the wake of the tragic events in Minneapolis and Atlanta. The recent events in Chicago have put the "civil unrest trade" back in the spotlight.
While these events certainly correlate with buy order demand for Wrap Technologies, investors need not dread the next ugly national headline to make money on the stock. This is because Wrap's products are being recognized as a necessary tool for the future of policing. With increasing interest in its main BolaWrap device, the $300 million market cap company has some interesting growth prospects ahead.
What Does Wrap Technologies Do?
Wrap Technologies provides modern law enforcement solutions for police departments in the U.S. and overseas. Its patented BolaWrap 100 is a remotely operated restraint device that is an alternative to lethal force. The handheld device discharges an eight-foot bola style Kevlar tether to restrain individuals from as far as 25 feet away.
While it may seem to be something more appropriate for an old Western film, the product's adoption has been widespread. The BolaWrap is carried in the field by over 180 U.S. police agencies and is being used in 29 countries.
It has garnered increased attention in recent months because it does not inflict pain unlike other non-lethal weapons like the Taser device, rubber bullets, or pepper spray.
The BolaWrap may be on the cusp of mimicking the growth pattern that we saw with Taser two decades ago. Amid heightened pressure for police reform, the product's ease of use and limited injury potential may make it a must-have item.
Last month the Bernalillo County Sheriff's Office in New Mexico announced its first successful deployment of the BolaWrap on a non-compliant suspect which resulted in no injuries. It was the latest is a string of similar announcements. The BolaWrap has been used to safely end dangerous situations in Texas, California, Florida, and Minnesota.
In recent months Wrap has received several purchase orders from law enforcement and security agencies including internationally. Orders have come in from the Indonesian National Police force along with three other Asian countries. The company exited the recent quarter with an order backlog of approximately $1.5 million.
A valid counterpoint here is that police department budgets are being reduced nationwide. This was recently the case in Seattle, and it is a trend that could very well continue. Regardless of whether police departments want to test out Wrap's products, in the near-term they may not be able to deploy funds to that area in the current environment. The perception of BolaWrap's value and how it fits into constrained police budgets will be a challenge in the months ahead.
How are Wrap Technologies Financials?
Wrap Technologies, which launched its IPO in May 2018, is still operating at a net loss and is also not EBITDA positive. This is because it is spending to develop its product portfolio and spread the word about its unique products. The company frequently conducts demonstrations at prospective customers' locations and at trade shows which adds up in the expense column.
On the plus side, the company's gross margin is a robust 32%. The balance sheet is also very healthy with a minimal long-term debt balance and a total debt to capital ratio of 1%. More than $35 million of its $39 million asset base is in cash.
So, while its lack of earnings won't get investors excited, its potential market size will. According to market research firm Report Buyer, the non-lethal weapons market is expected to grow to almost $12 billion by 2023.
Wrap's current market focus is on police departments and military personnel, but it has future growth opportunities in areas like private security and educational institutions. The company estimates that its total addressable market is comprised of more than 110 million people globally.
Is Wrap Technologies Stock a Buy?
Wrap Technologies' stock is about 43% off its recent $14.40 high. Given the muted trading volume on the way down from this peak compared to the heavy volume we saw in early June, there's a good chance it trends back towards the $14 level in the coming weeks. The MACD indicator on the daily chart also suggests an inflection point may be near.
Another appealing characteristic of the company is that insiders hold nearly 30% of the shares. It's comforting to see a leadership team with significant skin in the game. Three different corporate insiders have combined to purchase $1.6 million in Wrap shares over the last 3 months.
Last month the company appointed Marc Thomas, a former GE executive and member of the U.S. Military Special Forces, as its new CEO. The President is Thomas Smith, a former founder of Taser International.
Wrap's products have the potential to be disruptive to the weapons industry. At a time when protests around racial injustice and police brutality are at a boiling point, many police departments are reviewing their policies on suspect apprehension and exploring alternative ways to restrain unlawful individuals.
Police departments are spending millions of dollars annually on legal settlements related to alleged misconduct. They need safer tools to protect not only suspects but themselves.
Wrap Technologies is well-positioned to benefit from the ongoing police reform nationwide. It is likely to emerge a winner in the growing non-lethal market.
There is not a lot for investors to hang their hats on in terms of a sales growth track record, but those willing to exercise patience and restraint with this speculative stock may be rewarded handsomely.
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