Taser International, Inc. Valuation - The Influence of Behavioral Finance on a

Abstract

During the course of the 2014-2015 academic year, I was involved in the Chartered Financial Analyst (CFA) Investment Research Challenge, representing the University of Arizona. This challenge required that a team in undergraduate or graduate education value the company Taser International, Inc. and deliver a buy, hold, or sell recommendation to CFA professionals and sell-side analysts. After conducting a fundamental analysis of the company, we delivered a sell recommendation. The 12-month target price that we calculated to be the true value of TASR was $20.82, a 22.3% decrease from the stock's January 21, 2015 closing price of $26.80 (this was the date where we turned in our recommendation to the CFA Society of Phoenix for grading). In our valuation, one of our main arguments to sell the stock was that it's price was heavily influenced by news headlines. This paper analyzes the behavior of investors as they incorporate rationality (rather irrationality, in this case) in their stock selection, and how biases like judging the value of a company based on headlines will provide an artificially inflated market price, as it did in our valuation of Taser International, Inc.