America is currently in the grips of confronting a longstanding issue with the way we police our citizens. Issues that have long existed are finally getting the sort of prolonged national attention that could actually force public officials to confront the systemic discrimination that’s plagued law enforcement in much of this country for decades.
Unfortunately, there’s no easy solution to these issues. Systemic inequality that was generations in the making can’t simply be erased overnight. There are, however, certain achievable fixes available in the short term.
Controversies Over Police Abuses Give Traction to Mandatory Body Camera Initiatives
What started with outrage over the officer-involved shooting death of Missouri teenager Michael Brown has grown into a national conversation. Further incidents, including the choking death of Staten Island resident Eric Garner and now the shooting death of South Carolina resident Walter Scott, have only cast more light onto the issue.
This is not to suggest that the issue of police brutality is a new one. Far from it, the problem is deeply rooted in American society, and has been for generations. But the current attention does appear to be creating an environment in which public pressure could reach a critical mass that might even lead officials to finally address growing complaints.
It is in this politically-charged climate that various state and local government proposals for equipping officers with body cameras have gained considerable traction with the public.
Proponents Argue Body Cameras Could Save Lives
The aftermath of the Ferguson shooting saw 60 different witnesses come forward with no two people telling the exact same story. In many cases, the reports on what happened were wildly different, making it next to impossible to concretely confirm or deny details from contradictory stories from Officer Wilson or Dorian Johnson, Brown’s friend who was with him during the incident.
For law enforcement professionals and legal experts, this isn’t surprising; eye witness testimony is notoriously unreliable. However, in an incident like this one, where a public official shot and killed an unarmed citizen and ultimately escaped punishment for his action, the stakes are high on a public and personal level.
What if Wilson had been wearing a body camera? Could the rioting and protests have been avoided if there was a more concrete, reliable source of information? More importantly, if Wilson and/or Brown were aware that their actions were being recorded, might Michael Brown still be alive today?
Police body cameras certainly don’t represent a complete or ideal solution, but there is plenty of reason to believe that more future altercations like that between Darren Wilson and Michael Brown might progress without ending in violence in the presence of a body camera.
Rialto Study Bears Out the Effectiveness of Body Cameras
Probably the most complete study of the potential impacts of police body cameras comes from a long-term experiment conducted by the police force of Rialto, CA. Certainly, overemphasizing the way one town’s policing was affected would be a mistake, as every different law enforcement organization across the country faces its own unique set of circumstances. However, the results of the experiment in Rialto were extreme enough to catch the attention of a lot of people – particularly in the aftermath of Ferguson.
After instituting the program in February 2012, Rialto saw an 88% decline in the number of complaints against officers and a 60% reduction in incidents involving a use of force over the next year. The takeaway was that officers and civilians alike were much better behaved when they knew the camera was recording them.
Body Cameras Could Help Cash-Strapped Cities Cut Costs
In addition to the potential for safer policing, less violence, and fewer fatalities, city government and police departments may have an additional incentive: a reduced liability for lawsuits.
The amount of money America’s cash-strapped cities pay out for lawsuits involving their police departments are fairly staggering. A Baltimore Sun article from September revealed that the city paid out $5.7 million in settlements and another $5.8 million in legal fees since 2011, a figure that likely would have been higher if not for mandatory caps on such payments. Chicago shelled out some $521 million over a 10-year period through April of last year. Denver spent $13 million last year. Oakland spent $74 million.
Going back a few years, a Bloomberg piece from 2012 revealed that Los Angeles spent $54 million in 2011, about $14 per citizen. A pittance, though, when compared to the $735 million New York City spent in the same period, good for $81 a person.
The conclusion? If the results in Rialto are any sort of indicator for what can be expected on a larger scale, a body camera initiative could more than pay for itself.
The public is increasingly viewing body cameras as a practical solution for many of the issues with how police forces interact with the communities they serve, as well. A petition on the White House website calling for a law mandating the use of body cameras at the state and local level, for instance, received over 150,000 signatures.
Certainly, any federal law legally mandating compliance probably isn’t in the cards with this (or any) congress, but it’s not as though demand for these cameras is indelibly tied to one bill. Action on the local level seems to be increasingly likely, given that these body cameras may represent a rare nexus of clear cost-benefit for city budgets. Coupled with enough public pressure, this creates a clear political incentive for elected officials.
Exceptional Value for Society and Investors Alike
So, how would an enterprising investor make good on this? If you’re ready to buy into the idea that we’re just a few years from nearly every police officer in the country wearing body cameras, the vast majority of the existing market is currently satisfied by three companies: the afore-mentioned TASER International, Digital Ally, and the privately-held VieVu.
TASER International is clearly the big player in this segment. With a market cap just short of $1.5 billion, it dwarfs the much-smaller Digital Ally. TASER has a diverse range of product offerings geared towards law enforcement and security. Obviously, its best-known product is its namesake Taser, a device that fires two metal prongs into a person in order to incapacitate them through an electric shock. For all the bad publicity the devices have gotten, they have presented a non-lethal use of force for police that has quickly become widely used.
As such, TASER is a pretty logical fit for the production of body cameras, likely being able to leverage a lot of existing infrastructure and business contacts should police forces adopt the wide spread use of body cameras. It’s a business opportunity that likely excites TASER shareholders as the current product, the Axon Body camera, retails at $399 and would include an ongoing subscription to TASER’s cloud data services for actually recording and transmitting the footage.
TASER can currently boast a dominant market share, with CEO Dan Behrendt claiming the company has only lost one police department bid thus far (to VieVu).
The second company, Digital Ally, represents a significantly different play. With a market cap of just over $50 million, the company is firmly in micro-cap territory. Digital Ally features a variety of different cameras for law enforcement, with the FirstVu Body Camera appearing in a product portfolio that includes cameras built to be attached to everything from car dashboards to boats. While clearly not operating on the same level as TASER, Digital Ally could potentially present a lot more opportunity for investors, given its smaller size.
Both of these stocks saw a major spike in mid-August of last year, as the situation in Ferguson rapidly attracted more attention. TASER International has more-than doubled in value since mid-August of last year, as interest in reforming policing tactics inevitably turned towards products for which TASER is already a market leader.
Digital Ally, though, nearly had its own 10-bagger over only a two week period, climbing over 925% from August 14 to September 2. This move saw shares climb from $3.25 to over $33. Shares currently trade at just over $13, so much of that was clearly part of a rush by investors to find any alternative to TASER. But that doesn’t mean Digital Ally didn’t warrant that sort of attention. It’s still up nearly 135% in the last year, and could make even bigger gains if they can grab some of the new body camera market.
It seems inevitable that demand is due to spike in this segment. President Obama announced $263 million in matching funds through the Justice Department for police forces that purchase body cameras, and, if this program yields results, the public and political support for similar programs could rapidly accelerate.
For investors, the real question is whether this expansion has already been priced into the stocks. In both cases, the companies are worth a lot more than they were a year ago, but that doesn’t mean that both couldn’t be due for major revenue growth if orders from police stations across the country start rolling in. It’s hard to see a massive spike and abrupt pullback like Digital Ally’s last August and assume the market has effectively priced the stocks at this point, so where these companies land leaves a lot to speculate over.
An Important Step Forward…but not the Final Answer to Ethical Policing
Police cameras are clearly not a perfect solution. There can clearly be incidents where the camera might not get turned on – something that’s much more likely to occur in the event that police officers are knowingly acting in a malicious or illegal manner. Not to mention, the existence of video evidence is no guarantee that things will play out differently. The choking death of Eric Garner was clearly captured on video, and the officer involved still wasn’t indicted by a Staten Island grand jury, sparking outrage across the country.
However, the evidence indicating that body cameras can, at the very least, be a relatively fast track for creating real improvement is very compelling. With the current zeitgeist, companies like TASER and Digital Ally could soon be in a position to capitalize on a valuable market opportunity. The potential for a rapid spike in demand for their products could present both companies with a unique chance to boost profits quickly.
DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer