Wrap Technologies: Intriguing Technology, Uncertain Future (NASDAQ:WRAP)

Authority without wisdom is like a heavy axe without an edge, fitter to bruise than polish.”― Anne Bradstreet.

It has been just over a year since we last took a look at a small cap name called Wrap Technologies, Inc. (NASDAQ:WRAP). When we last highlighted this company, its non-lethal product offerings had won acceptance with police agencies across the country. However, at the time of the last article, this has not resulted in meaningful sales and, therefore, we labeled the equity as an “avoid” at that time. After languishing for quarters, the stock made a big move up with the overall market rally that began in late October.

Earlier this month, the company terminated its CFO and also appointed a new CEO. Given it has been more than 12 months since our last peak at Wrap Technologies, today we provide an updated analysis on the company.

Company Overview:

The company is headquartered in Tempe, AZ, in the same city as Arizona State University, my alma mater. The firm is focused developing policing non-lethal products solutions to law enforcement and security personnel. Wrap’s flagship product is BolaWrap 150. This is a handheld remote restraint device that discharges a seven and a half-foot Kevlar tether. The purpose of this is to entangle an individual from a range of 10–25 feet. The company also provides a offers virtual reality training system using 3D technology. The stock trades just under $3.50 a share and sports an approximate market capitalization of $140 million.

Third Quarter Results:

The company posted its Q3 numbers on November 9th. Wrap Technologies posted a GAAP loss of seven cents a share. Net loss for the quarter was $2.78 million, down from a net loss of $3.87 in the prior period a year ago. Revenues rose more than 110% on a year-over-year basis to $3.63 million. Sales growth was driven by international buyers. Sales there came in at $2.29 million for the quarter, compared with just $220,000 in the same period a year. Sales from the Americas fell to $1.34 million from $1.48 million in 3Q2022.

Trained law enforcement agencies that can utilize the BolaWrap grew 14% to 1,400, as did certified officer instructors to 5,200. At the end of the quarter, order backlog was only $385,000. Then to close out 2023 on a high note, the company received the largest order ($4.9 million) in its history. Since that news, the stock has moved up by some 20%.

Analyst Commentary & Balance Sheet:

There have been no analyst firm ratings on Wrap Technologies over the past year, at least listed on TipRanks. Just over 12% of the outstanding float in the shares are currently held short. There was some very small insider buying in the second quarter of last year by several insiders when the equity was trading just over a buck a share. There has been no insider activity in the equity since that time, however. The company did file a prospectus around a proposed resale of just over 910,000 common shares by the selling stockholders in Mid-November. I don’t see that listed as insider sales yet, though.

Wrap Technologies ended the third quarter with just over $14 million in cash and marketable securities on its balance sheet. The company has burned through $4.5 million worth of cash in the first nine months of its FY2023. The company has no long-term debt.

Verdict:

There are no current analyst firm earnings estimates on Wrap Technologies for either FY2023 or FY2024. In FY2022, the company achieved just over $8 million in sales.

I continue to find the company’s technology intriguing. Especially in light of the growing need for non-lethal force to deal with escalating mental health issues, homelessness and opioid addiction challenges. However, there are several issues with recommending WRAP for investment. First, Wrap Technologies, Inc. stock has had a huge recent run and would seem vulnerable to some profit taking. Second, there is no analyst coverage or sales/earnings estimates around the company. Wrap Technologies orders also seem a bit “lumpy,” and it is hard to impossible to project when the company might become profitable. Finally, given the current cash balances, a capital raise could be on the horizon sometime this year. Therefore, I have no investment recommendation on WRAP, although I will keep an eye on this evolving story.

An attempt to achieve the good by force is like an attempt to provide a man with a picture gallery at the price of cutting out his eyes.”― Ayn Rand.