Bear of the Day: Wrap Technologies (WRAP)

Wrap Technologies (NASDAQ:WRAP) is a Zacks Rank #5 (Strong Sell) that is a public safety and technology company. Wrap develops policing solutions to law enforcement and security personal.

Its main product is BolaWrap, which is a hand-held remote resistant device that discharges an eight-foot bola style Kevlar tether to entangle a subject at a range of 10-25 feet.

Wrap has a nice niche as law enforcement looks for alternatives to firearms. The company describes its product as “A pre-escalation apprehension tool that safely and humanely restrains resisting subjects from a distance”. The goal is to achieve a positive outcome, rather than the negative that we have all seen in the news over the years.

While the objective is great, investors might be a bit too early as the idea has not caught on. This has been reflected in earnings over the years and late last month when the company reported EPS.

More about Wrap

Wrap was founded in 2016, is headquartered in Tempe, Arizona and employs 52 people. The company is valued just over $300 million and has negative earnings. WRAP has Zacks Style Scores of “A” in both Momentum, but an “F” in both Value and Growth.

Earnings History

The stock had a big run higher after the BLM protests in 2020 brought attention to the issue of police and firearms. However, after the company reported big earnings miss in July of that year, investors realized the earnings just aren’t there yet. There are questions if the BoloWrap is effective enough and while some departments have adopted it, the product isn’t close to being mainstream.

Q4 Earnings and Estimates

The company reported earnings in late July seeing a 54% miss on the bottom line. Revenue came in at $1.9 million vs the $0.8 million last year, so there is some momentum in sales.

However, estimates are still grinding lower. Analysts just don’t see a positive turn anytime soon, which is why the stock likely is well off this year’s highs.

Over the last 30 days, estimates have dropped for the upcoming quarters. For the current year, estimates have dropped from -$0.46 to -$0.56, or a drop of 22%. For next year, estimates have dropped by 50%.

The Technicals

The stock is actually holding up pretty well. After seeing support at the 200-day MA in June and July, the WRAP moved higher after its earnings report. Since then, the 50-day moving average was taken back by the bears and is holding some short-term support. Look for $6.30 and the 200-day to hold the line for the bulls and the 50-day under the $8 level to be sold.

The stock likely trades sideways until there is more adoption of its products.

In Summary

Wrap has an ambitious and noble goal, but it might take a while to catch on and be the norm. Investors know they might be early, but also have to accept that the BoloWrap might never be the standard in law enforcement.

The stock likely trades sideways until it can land a major contract. Until then, investors might want to look at Resideo Technologies (NYSE:REZI) (REZI). This stock is also in Security and Safety Services, but is a Zacks Rank #2(Buy).

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