From Zap to Zzzzz

When Brad Koteshwar, a private investor in Scottsdale, Ariz., decided to sink $6,000 into the stock of a hot local company, stun-gun maker Taser International, in January 2004, he knew it was risky. The stock price had already soared nearly 2000% in 2003, and that kind of phenomenal growth just can't last forever. "We got in a little late," admits Koteshwar, who with his wife Sheila also holds seminars and publishes a newsletter on stock investing. But police departments from Kansas City, Mo., to San Jose, Calif., were placing large orders for Taser's weapons, which emit a 50,000-volt electrical shock and can immobilize a person for as long as two minutes, and Koteshwar decided that the "young, small, growth company" was worth the risk.

Amazingly, Koteshwar was able to cash out with $18,000 in profit after just four months. Taser went on to become the best-performing stock of 2004, more than quadrupling in price--despite the emergence of a potentially chilling scandal in late November: Amnesty International issued a 93-page report detailing 74 deaths in the U.S. and Canada of people who had been hit with a Taser, and calling for a moratorium on the weapons until more independent medical-safety studies were conducted. Yet after a brief stall, Taser's stock continued its upward climb, hitting an all-time high.

And then the stock abruptly hit a wall. Just days after the company wrapped up its best year ever, with $68 million in revenues, the SEC and the Arizona attorney general announced informal investigations of the company, and Taser warned shareholders that the pace of new orders might slow down. In the first 11 days of January, Taser's shares lost nearly 60% of their value.

How did things get so bad so fast? "The problem with a stock like this is that it attracts fanatics," says Brian Ruttenbur, an analyst at Morgan Keegan. Enthusiasts, says Ruttenbur, treated Taser like a dotcom, sending its price soaring, even though the company posted just $4.4 million in earnings in 2003. The company's rapid growth--some 10% of the nation's 1.1 million officers now have a stun gun--led investors to hope that soon every police officer would get a Taser, just as most carry batons and pepper spray.

That dream seems to have stalled, with some police departments already beginning to curb orders. The bad news keeps coming. Several class actions are in the works, and a recent Air Force study suggests that Tasers may not be 100% safe. Chicago, which already has 200 of them deployed, delayed plans to distribute 100 more in February after a 14-year-old boy suffered cardiac arrest and a 54-year-old man died after being stunned. Both were unarmed. "This is a classic case of giving someone a technology, then seeing them use it inappropriately and excessively," says Benjamin Wolf, associate legal director of the Illinois branch of the American Civil Liberties Union.