Today we go back to the land of small caps, for a teaser pitch from Alex Koyfman that touts the maker of “the most advanced non-lethal weapon on the planet,” maker of “the handgun poised for Taser-sized gains” of 65,233% … and also, for good measure, tosses in two other “Bonus Non-Lethal Weapon” small stocks.

So let’s put the Thinkolator to work and get you three answers for the three teased picks, shall we?

Kofyman’s ad is for his Microcap Insider newsletter ($1,999 for the first year, 90-day refund period), and the ad starts us out with a video of the “non-lethal handgun” that shoots chemical irritants to “disarm and disorient” your attacker… in Koyfman’s words…

“… those aren’t rubber bullets that the gun is firing off.

“Those are a proprietary mix of chemicals that cause your eyes, nose, and throat to burn upon impact.

“This handgun provides the perfect amount of chemical irritant to subdue your attacker without causing them serious harm.

“This weapon is the cream of the crop in a massive, growing movement that’s quickly becoming the way of the future for law enforcement in America.”

And the promise, of course, is that this weapon could be “the next Taser” as non-lethal weapons get adopted both by the general public and by police departments. And that’s obviously appealing, because Taser’s stock went through a couple wild surges in the early 2000s as police departments began adopting the charged energy weapons en masse… and it has worked out phenomenally well for Taser shareholders — the company is now called Axon, adn went through a long lull after that first surge in 2004, but begain to really take off after they began to dominate the body camera and “evidence cloud” video storage in the last decade, so if you held for 20 years or so you would have ended up with those teased 65,233% gains.

That would have required buying at the lows in Taser’s very early years when the products weren’t selling well yet, of course, and selling a couple months ago — AXON is down a good 30% from its October highs. If you had bought TASR when it was becoming popular, in 2004 or so, your gains would be in the 300-700% range today, quite similar to the S&P 500 (which has returned about 450% since 2004), and you would have had to sit through more than a decade when TASR and then AXON were trailing the broader market pretty dramatically.

Which is not to say that we should never speculate on long-term growth ideas, just a reminder that holding on to them for long enough for the story to really work out is a lot harder than it might seem if you’re just looking at the historical charts and those 60,000% gains and saying, “I wish I had bought that.” Sometimes it’s not the buying that’s the hard part, it’s the holding. And, of course, those are the good ones and the survivors — the ones that didn’t work out at all are washed from our memory.

So what’s the “next Axon” being teased today? Here are our clues…

“The company is only a TENTH of the size of Axon. It’s TINY.

“And it has the potential to produce even BIGGER gains for investors than Axon did…

“Why?

“Because this new non-lethal handgun is safer than a Taser….

“… sales for this firm are exploding.

“For instance, in 2020 sales of this company’s gun grew a staggering 1,692%.

“And revenues have jumped 1,016% in just the last year.

“This Could Easily Become a Multibillion-Dollar Company Over the Next Few Years… and It Could Mint Investors a Life-Changing Fortune”

There’s been an uptick in crime since the pandemic, particularly in some US cities, so Kofyman ties into that fear as well…

“This handgun is rapidly becoming a favorite among law enforcement, private security forces, and citizens alike….

“With deadly violence skyrocketing, America’s police officers have their work cut out for them.

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“These heroes put their lives on the line to protect American citizens every single day.

“Cops hesitate before using deadly force. And that hesitation puts the cop in danger.

“But with this non-lethal handgun, a cop doesn’t need to decide whether to take a life or not.

“This gun helps police do their job quickly, WITHOUT needing to use excessive or deadly force.”

Axon was a $10+ billion company a few weeks ago ($8 billion now), so a firm a tenth of that size would indeed be quite small… do we need any more clues?

Not really, partly because I remember the splash when these airguns were first released for sale a year or two ago, and I actually bought one to check it out… though I hadn’t looked at the stock. This is Byrna Technologies (BYRN), formerly konwn as Security Devices International (SDEV — they changed names right as the pandemic was hitting in March, 2020).

Byrna makes the Byrna Launcher, which is what they call the handgun-looking device that uses CO2 cartridges to propel what look like fancy paintgun balls — but the big selling point is that the device is easy to use, doesn’t require background checks and can be sold online in a lot of places, and fires projectiles that can be filled with a chemical irritant. Kind of like pepper spray, but effective at 40-60 feet instead of five feet. I’m not much of a gun guy or a marksman, but I can hit the door in my garage at about 20 feet just fine — I haven’t tried the pepper spray, but the inert projectiles work just fine, they put enough of a dent in a wooden door that I wouldn’t want to be hit with one (definitely more serious than a paintball), and it’s pretty easy to use.

I don’t know whether their devices are completely non-lethal — they also have kinetic projectiles that are hard plastic, so I suppose those could be even worse than a rubber bullet in close quarters — but they’re certainly a lot less lethal than a regular handgun, and I would guess less likely to cause permanent damage than a Taser (I’m sure they would dispute that). The biggest appeal is probably for families who don’t want to have a gun in the house but do want some protection, since a thief or a suicidal teenager or curious kid getting ahold of a Byrna is less likely to be a disaster than if they get ahold of the handgun in your nightstand, but they are also appealing to gun owners who want a less-lethal tool that feels familiar in the hand, and they would like to get police to adopt the technology and help establish a large and steady market. As someone who got on their mailing lists because I bought one of the devices, I can tell you that they do a great job of marketing.

They’ve also been expanding their product lineup beyond the initial launcher I tried out — they have higher end devices, devices that are aimed at professionals, and some new devices for longer range that are shoulder-fired like rifles and shotguns (acquired when they bought Mission Less Lethal last year), with variations of their projectiles that are more reliable at longer range, and they also acquired Ballistipax back in August for their (horribly depressing) bulletproof backpacks for children, now called the “Byrna Shield,” and they recently introduced the Byrna Banshee personal alarm. The vast majority of their sales right now are to individuals, through online sales, but they’re hoping to spread that out more as they sign up distributors and add institutional customers. And as the products get used, they hope, the business model will migrate to the “razor and blade” model, since you need their proprietary projectiles to reload the launchers (and the projectiles can be sold at higher margin than the launchers).

They’ve raised cash with some follow-on offerings in the past couple years, but the company remains very small and has a decent slug of cash on the books to fund their attempts to ramp up sales. It looks like their market cap is now just under $250 million, so the company is quite small, and they have been growing the revenue nicely over the past four or five quarters, with solid gross profits, but they’re also spending pretty heavily on their marketing so they’re not currently profitable. They have not reported their fourth quarter yet, but their quarter ended on November 30 and they did report preliminary numbers and offer some impressive sales guidance — they had 150% revenue growth in 2021 and are forecasting 50% revenue growth in 2022. They also authorized a share repurchase program, which might help offset the dilution from their convertible preferred stock and warrant exercises.

Interestingly, that strong fourth quarter actually did NOT represent meaningful year over year growth in that quarter (they had sales of $11.03 million in the fourth quarter of 2020, $11.2 million this last quarter), and the number also came in below the sales number for the second quarter of 2021 — and that highlights the big variability in revenues. The fourth quarter of 2020 is when they really launched full-scale commercial sales, so revenue was high because there was pent-up demand from the orders they had been taking for a few months but hadn’t fulfilled, and the company says that surge in the second quarter last year was caused by a mention on Sean Hannity’s show on Fox News.

We don’t know what their marketing spending will look like in 2022, and I haven’t dug into their financials in detail or listened to their conference calls so I don’t know if they’ve been more detailed about their strategic plan, but presumably their cost of goods will be fairly steady, it’s been at about 44% for a couple quarters and should decline a little bit as they get more efficient with growing volume, and sell more projectiles. That would mean gross profit for 2022 might come in around $28 million, and their total operating expenses last year were about $24 million, so they may or may not be profitable this year but they at least should have enough cash to fuel that growth, and possibly to do the share buybacks they’ve authorized. Right now, it’s valued at about 10X gross profit and 4X forecasted revenues, which seems pretty reasonable IF they can grow the business to maturity and build themselves into a strong consumer brand.

So… interesting idea, it’s really a personal protection story at this point, but if, like Taser did 15-20 years ago, they can convince more police departments to use this in place of pepper spray or rubber bullets it could establish itself as a steadier business. Certainly there’s a rising level of fear-mongering about crime these days, and actual rising crime in some cities, and that tends to raise the profile of personal protection products.

What about those other two ideas? Let’s see what Koyfman is pitching…

“Bonus Non-Lethal Weapon Stock #1

“My first bonus pick is a company that’s created a non-lethal gun that doesn’t fire rubber bullets.

“It shoots rope around your target’s legs from a safe distance.

“And there are already over 600 police departments that use this non-lethal weapon…

“Which means the company is growing fast!

“In fact, its revenues have already jumped 132% from last year.

“And investors are starting to take notice…

“Shares of this firm jumped 277% in just four months.

“But as high crime rates progress, their stock could rise much further.”

That one’s more familiar to longtime Gumshoe readers, that’s a pitch for Wrap Technologies (WRAP), which makes the Bolawrap device for police — and as teased, it shoots a “bola”, a kevlar cord with little fishhooks on the ends, that wraps the legs or arms of a person at 10-20 feet so that police officers can approach safely. Unlike the Byrna, this is an actual firearm, it uses a half-cartridge of gunpowder as its propellant, so it’s also loud and helps to startle the target into submission as well (which is good, because sometimes the bola doesn’t work — if you’re naked, or wearing a puffy jacket, or standing up against a wall or fence, etc.). It’s not, however, a particularly viable personal protection device — if law enforcement professionals don’t opt to use it, there probably won’t be much of a market.

I’ve got a small speculative position in WRAP that I’ve been sitting on for a couple years, mostly just waiting to see if they can get over the hump and convince some police departments or international buyers to make big commitments. It’s been slow going and mostly disappointing so far — they are getting orders, but not huge ones, and their highest-profile pilot program, with the Los Angeles Police Department, has generally been a dud so far. Because of the pandemic, their pilot program generated very little data because the device wasn’t used very many times in its first year, and the initial effectiveness was not particularly impressive. They’re continuing the test, last I heard, but they’re also losing their CEO for the third time in about a year — and they’re losing some other top leadership at the same time, which is not a great sign. The stock’s best short-term jump has indeed been 277%, but that was from the lows of March 2020 to the highs of that Summer… it’s been pretty ugly since then, if you bought at those pandemic lows the shares are currently, with today’s bad news, about 25% below that level (more on that latest news in a minute).

This is what I wrote about WRAP last time I commented on the shares in a Friday File, back in August when they were excited about a small test order placed by the Miami PD:

“… the investment thesis with WRAP is that the business can snowball, like Taser 20 years ago, if police departments begin buying the BolaWrap and it becomes a standard tool on the officer’s belt. This builds nicely on that theme, but it’s going to take a while before we find out how it might go… and when or if investors become genuinely enthusiastic about the potential is a wild guess as well.

“Taser (now AXON) didn’t really take off as an investment until there were thousands of police agencies buying Tasers in the early 2000s and revenue got to $10 million or so, and the valuation excitement peaked at a little over 20X sales in 2005, when they got up to near $60 million in revenue for the first time. After that peak in excitement, the shares fell off as that baseline business had been established and revenue growth tailed off, so it was also pretty much dead money from 2005 to 2015, when the growth picked up thanks to their newer body cam/video evidence cloud service. That’s a note to self that if we want to play the first explosion of interest in rolling out the BolaWrap, assuming such an explosion comes, we need to be prepared to sell at some point once they hit critical mass in police department sales (or, perhaps, hope that their Virtual Reality training business can be another growth engine). I’m not using a stop loss on WRAP now, but I will begin to watch one if we get a real run in the share price.

“They’re still pretty far from that point right now, the stock is still lightly followed, with a market cap around $300 million, and just had its first $1 million sales quarter, but it’s possible that if uptake speeds up they could get to something like $10 million in revenue next year and begin to snowball if several large cities start deploying BolaWraps. I’ll keep waiting.”

And what’s that new bad news today? The resignation of most of leadership, including CEO Tom Smith and CFO Jim Barnes — Tom Smith is apparently leaving immediately, Barnes within the year, and an accompanying shakeup of the board, with a new Chairman. That’s a lot of change for a company that hasn’t been able to get any sales traction yet, and which will now be on its fourth CEO in two years, and that’s a red flag for me — as it clearly has been for other investors, with the shares down 30% or so this morning.

Having Tom Smith from Taser in charge was a good thing, I thought, he had successfully build Taser, and that success was the model for the Bolawrap, and his experience carried some weight with the police departments they’re trying to win over, but as they churn through executives and shift strategies it’s hard to generate a lot of optimism. I’m not buying this one, though I haven’t yet sold my small speculative position (and since I’m writing about it today, I can’t sell for at least a few days — I’ll let the Irregulars know if my holdings change in the future).

Byrna is a much cleaner growth story than Wrap, at least for now — the Bolawrap might end up being a more attractive product for police departments than the Byrna launchers, and it’s possible that Wrap’s virtual reality training business or something else could eventually take off and offer that diversification that Axon got from their body camera business, but right now they don’t have much sales traction, and it’s not looking great.

I don’t know how the use-of-force spectrum for police officers will end up being shifted with Bolawraps and Tasers and pepper spray and perhaps Byrna pepper spray projectiles and everything else that’s available, or which products might merit a spot on the belt (cops can’t carry everything, of course, and those belts are already pretty full), but the consumer business has already proven out some appeal for Byrna, and that avenue is not really available to Wrap. Wrap is really counting on institutional-level sales, but Byrna is just about breaking even already, almost entirely on direct-to-consumer sales, and has 5-10X higher sales than WRAP so far. Among those two, I still own some WRAP shares… but BYRN is pretty clearly the safer bet at the moment, though both companies are tiny and very speculative.

But that’s not all, dear friends, what’s behind door number three?

“Bonus Non-Lethal Weapon Stock #2

“My final bonus pick is a technology developer that helps law enforcement more effectively investigate crime.

“Its patented system of sensors, software, and AI alerts police to the exact location of gunfire.”

Ah, that sounds familiar already… but still, let’s let Koyfman drop all of his hints before we jump to a conclusion:

“… the technology is 97% accurate.

“Not to mention, the alerts allow police to better collect evidence, seize firearms, make arrests, and solve cases.

“That’s why 120 U.S. cities already trust this firm to help make their communities safer.

“The company’s revenues jumped 132% in a year…

“But as more cities around the world adopt its technology, that number will continue to soar.”

So… hoodat? As some of you are already guessing, this is ShotSpotter (SSTI) — which uses an array of microphones and AI technology to alert police to “shots fired” events and, as a record is built over time, helps police departments plan their patrol routes more effectively. The company is about the same size as Byrna, with a market cap of about $290 million, but growth has been a bit more gradual as they’ve built up their customer list over the past few years. They are roughly breaking even on a cash basis, but are not quite consistently profitable yet. The shares have gotten into the $50’s a few times in the last three years as little waves of enthusiasm crest over the stock (and I’ve written about it a few times over the years, as newsletter pundits have teased the shares, including James Altucher and Ian Wyatt), but they’re currently at about $25.

ShotSpotter always strikes me as at least a little interesting when I dig into the company, mostly because the business is generally very sticky — so if they can convince a bunch of relatively large police departments to use it over pretty big areas where gunshots are a frequent concern, that can generate some nice recurring cash flow as the service is continually renewed and maybe expanded. It has often been “oversold” to investors, including as a cure for school shootings, and that hype has gotten out of control sometimes, but the basic business has some appeal.

What it doesn’t have, though, is a ton of growth. They’ve been profitable in some quarters in the past, and the gross margins remain pretty strong, but they’ve had to ramp up their selling costs to keep revenue growing, so they continue to operate pretty close to break even of late. The good thing is that the revenue has been growing pretty steadily and the share price has generally been weak, so the valuation is getting a little more appealing… the bad thing is that other than the bounceback from 2020 that they enjoyed last year, the growth has not been particularly exciting, and analysts are currently predicting only about 15% revenue growth for 2022. I don’t know if they’ll be right or not, but that doesn’t inspire a lot of excitement at a time when people are not throwing money after unprofitable or marginally profitable growth companies that are growing a lot faster than that… though SSTI is, at least, still quite small, so even a few new orders would make a meaningful difference.

ShotSpotter has gotten some negative press in recent years, apparently, enough that they have their own website up to refute some claims that have been made. I haven’t looked through it carefully, but they do make some good arguments in their investor presentation about the value of their “precision policing” services and their historical and growing effectiveness, including their track record of impressing municipalities and building initial deployments to cover larger areas of various cities.

I’d expect the business to be a little bit uneven, since adding a new customer (a city, generally) takes a fair amount of time, and usually if customers are going to become large it takes time to first run pilots and then expand test programs to prove the effectiveness of the system. They say they added a dozen new accounts in 2020, and lost three accounts. Last quarter, they went live in three new cities and expanded their service to seven other cities, and booked two new campus customers, and had no attrition, so that’s a solid quarter and they’re beginning to make a little bit of headway with some of their add-on services, including their precision policing AI systems and their ShotSpotter Investigate product (a case management platform), and that has some potential to become a strong and sticky service if they can grow it to scale.

So right now, growth is expected to be a bit tepid, and that’s hard to take for a company that’s pretty small and not currently very profitable, but I can see some potential for this to build into something larger if they continue to build on their existing contracts with cities and offer them new software and services in addition to the gunshot detection service. The downside is that they will sometimes lose big customers, too — their biggest customer in the past has been Chicago, and that contract has come under pressure in the past year as some activists have called on the city to cancel it, mostly because of high costs and questioned efficacy (I don’t know what the current state of that controversy is, but here’s some reporting from November in the Sun-Times).

Great business model if the product continues to be found effective by police departments, appealing potential, but also very much in the public eye and dependent on a relatively small number of cities who are their largest customers. I don’t own this one but, like I noted above, every time I look at it I see some reasons to like the idea.

And that’s our three-fer for the day, dear friends — what say ye? Ready to invest in some less-lethal or non-lethal weapons, or in other tools being sold to police departments to hopefully enhance safety? Think they’re not ready for your money yet? Let us know with a comment below.

Disclosure: Of the companies mentioned above, I regrettably own shares of Wrap Technologies. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.