Motley Fool tackles shareholder numbers, taking stock of Axon and the "wash rule."
ASK THE FOOL
Q: Can you explain what the “wash sale” rule is?
A: It comes into play if you’ve sold a stock (or other security) to generate a loss and have also bought it — or a very similar one — within 30 days (before or after) of doing so. In such cases, the loss cannot be claimed for tax purposes. But you do get to add the disallowed loss to the cost of the repurchased security, and it’s claimed when the stock is finally sold without triggering the wash-sale rule.
You can avoid the rules entirely, though, by not buying a security within 30 days of selling the same one or a similar one for a loss.
Q: How many shareholders do companies generally have?
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A: It varies. Small companies might have just a few, but publicly traded ones typically have thousands. Bank of America had 174,913 registered shareholders as of early 2018, for example, while Cisco Systems had 40,817 as of August.
Those numbers are misleading, though, because many people hold stocks “in street name” — through a brokerage. The shares are held in the brokerage’s name, but the clients are the actual owners of the shares. A company may not even know how many different shareholders it has within a given brokerage’s block of shares.
As an example, IBM has noted, “At year-end 2016, there were 427,455 registered owners of IBM stock. Another 1,600,000 stockholders own IBM stock through brokerage firms, banks, credit unions and other financial institutions.” The number of shareholders changes all the time, too, as shares are bought and sold.
MY DUMBEST INVESTMENT
Dear Fool: I bought shares of action-camera specialist GoPro last year when they were trading above $50. I’m now sitting on about a 90 percent loss, as they were recently trading for about $5 apiece. The company is the poster child for how The Motley Fool can get a stock pick spectacularly wrong.
I’m holding on, as I think it is likely to have a second act or dead-cat bounce.
The Fool responds: You’re right that GoPro has not been our best recommendation. When we recommended GoPro, we liked its rapid growth, the ecosystem of products it was building, and the fact that its founder and CEO had a lot of skin in the game, owning more than 40 percent of the company. But that growth didn’t continue, seemingly due to falling demand.
The company is far from doomed and has its advocates; they’re optimistic about lower-priced products designed to draw more customers and the new high-end Fusion 360 camera. But unless you’re convinced that GoPro is likely to sustain robust growth, you might want to find other investments.
Always keep your money in your best ideas, as it’s more likely to grow there than in companies where you’re hoping for a second wind — or, worse, a “dead-cat bounce.” Wishful thinking is not helpful when investing.
THE MOTLEY FOOL TAKE
Law and order profits
Over the last 12 months, revenue at Axon Enterprise (Nasdaq: AAXN) has grown 21 percent.
That’s pretty good, and if you look under the hood, you’ll see multiple levers that could push the growth trajectory higher.
Axon has two major product lines: legacy stun guns (the company was formerly known as Taser International) and body cameras.
While its stun guns are the nonlethal weapon of choice for police departments across the nation and, increasingly, around the world, bringing in the majority of revenue, the latter is growing at a breakneck pace.
All of that body camera footage is stored and analyzed on Axon’s software-as-a-service (SaaS), Evidence.com.
Police departments pay a monthly subscription for the service. In the most recent quarter, Evidence.com’s high-profit-margin revenue from subscriptions increased 48 percent to $24 million — or roughly one-quarter of all company revenue.
Better still, the company is coming out with a new SaaS business next year, Axon Records, which could be just as lucrative.
It aims to help reduce paperwork and get police officers out from behind their desks and connecting with the community.
And here’s the kicker: Axon has virtual monopolies in both its stun-gun and body-camera businesses. Recently trading at a market value of just $3 billion, Axon is worth consideration for long-term investors. (The Motley Fool owns shares of and has recommended Axon Enterprise.)