Digital Ally (DGLY) stock has soared over 386 percent amid calls for cops to wear body cameras following the Ferguson, Mo. police officer shooting of an unarmed teenager. DGLY took advantage of an unbelievable run in the stock for a small raise, a heady but ridiculous action in light of how short DGLY falls below the industry leaders.
We’ve seen this movie before and we know there is absolutely no justification for the stock’s crazy run from about $3.80 in one astonishing month to today’s nearly $20.
Here are TheStreetSweeper’s top reasons we believe this DGLY movie will end badly:
- National interest is in police body cameras, not DGLY’s old technology.
The old dash cameras – DGLY’s key product – are not even part of the national conversation.
"The recent emergence of body-worn cameras has already had an impact on policing, and this impact will only increase as more agencies adopt this technology,'' said Chuck Wexler, executive director of the Police Executive Research Forum, author of a recent report on the use of police body cameras.
Yet, the in-car video recording system constitutes 90 percent of DGLY’s already falling revenue and rising operating losses of about $1 million.
- Old technology = falling revenue.
DGLY’s in-car video revenue will likely continue to erode due to superior, cheaper body cameras offered by well-known vendors such as stun-gun maker Taser International (TASR), a profitable company up 43 percent since Ferguson to $17 plus change.
CNBC’s Jim Cramer said police wearable video will likely become the new normal and that market is owned by Taser.
Wearable cameras provide superior video footage that provides up-close and point-of-view, non-tamper recording compared with in-car video.
Indeed, DGLY’s old technology is clearly already feeling the pressure. Describing the company’s decline in gross profit, its last quarterly filing said:
“However, we are experiencing increased price competition and pressure from certain of our competitors that has led to pricing discounts on larger contract opportunities. We expect that this pricing pressure will continue as our competitors attempt to regain market share and revive sales and that it will have some negative impact on our efforts to improve gross margins during 2014.”
- Police wearable video is highly competitive, so we believe, DGLY is already too far behind.
The money-losing DGLY doesn’t even make the rankings in a Google search for “police body worn camera.”
Here’s a sampling of what investors will see:
- Taser (TASR)
- Martel digital
- Taser product superior to DGLY’s body cam.
*DGLY product is chest-level mount. TASR eye-level mount prevents view from being blocked by officer’s arm when shooting.
*TASR is price leader, more attractive purchasing plans, profits from subscription services.
*TASR AXON Flex is $599, AXON Body is $399. Offers $50/month ongoing maintenance, 3-year replacement and Evidence.com subscription. Yet DGLY FirstVue price is $900.
*DGLY intends to introduce a bullet camera that is not new, as evidenced by a simple search for “helmet camera” or “glasses camera.” Its weak brand, combined with a tiny sales force will get the DGYLY product shot down by police tech suppliers such as TASR.
- DGLY pales in key cloud video management solutions compared to TASR. The complexity involved is described by New York Police Commissioner William Bratton in the Wall Street Journal:
"This is an extraordinarily complex initiative. It is not simply going down to your local RadioShack, buying one of these things, and putting it on," Mr. Bratton said. "The storage issue is phenomenal."
TASR’s Evidence.com gives TASR the edge as it also profits from subscription services. The feature offers third-party storage, security, powerful video search and scanning, all elements important in court evidence. Yet DGLY requires local data storage, requiring scarce police department IT personnel’s management of voluminous video data.
- DGLY stock at about $19.50 is not sustainable. As excitement wanes, TheStreetSweeper believes the horrible fundamentals will set in and investors will have to pull out the handkerchief as this movie winds to a close.
Here’s are some financial highlights:
*Continuing drop in earnings per share over two years. A 99 cent loss prior year turned into a current $1.14 loss.
*Net income collapsed by 1376 percent versus last year, or from minus $.07 million versus current minus $.99 million.
*Return on equity significantly down at -64 percent, well below industry.
*Net operating cash flow dropped to minus $.6 million, nearly 500 percent.
* Important Disclosure: The owners of TheStreetSweeper hold a short position in DGLY and stand to profit on any future declines in the stock price.
- Editor's Note: As a matter of policy, TheStreetSweeper prohibits members of its editorial team from taking financial positions in the companies that they cover. To contact Sonya Colberg, the author of this story, please send an email to [email protected].