updated 2/3/2004 12:05:45 PM ET 2004-02-03T17:05:45

Shares of stun gun maker Taser International Inc. climbed as high as 4.6 percent on Monday, hovering near an all-time high, as the company reported higher earnings and as short sellers scrambled to cover their mistaken bets that shares were headed lower.

Taser International Inc. said fourth-quarter profits and sales rose on demand for its stun guns used by U.S. police forces.

The Scottsdale, Arizona-based maker of less-lethal weapons said earnings rose to $2.8 million, or 56 cents per share, compared with $67,498, or 2 cents per share a year ago.

The company’s shares rose in after-hours trading.

The earnings-per-share calculations include $449,000 of deferred revenue generated in the second and third quarters of 2003 as part of a trade-up program for the company’s Taser X26 weapon system, the company said. Additionally, current quarter results included a one-time charge of $248,000 for a discount offered to public warrant holders for the early redemption of approximately 782,000 warrants.

Sales rose to $10.8 million from $2.8 million in the year ago period.

Taser said it expects 2004 sales to double from 2003.

Shares rose to $149 in extended trading on Nasdaq, from their close at $135.02. The stock is up more than 3000 percent over the past year as investors have bet local police forces and the U.S. military may boost demand for the stun guns further.

“They just blew away what I was estimating,” said Joe Blankenship, an analyst with Westport, Connecticut-based Source Capital Group, who had forecast earnings of 31 cents per share on revenues of $7.5 million. “I would be cautious on buying it at these levels, but I wouldn’t be a seller.”

Earlier on Monday, the company said it would redeem all its public warrents to purchase common stock after earnings per share rose to more than $1 over four consecutive quarters.

Short sellers, who borrow shares and sell them at a high price in hopes the stock will fall and they can replace their borrowed stock at a lower price later, were forced to cover their bets. The hurry to buy the stock sent the price still higher.

“People are getting squeezed,” said Arthur Hogan, chief market analyst at investment firm Jefferies & Co.

The latest issue of Barron’s reported the stock would soon sell off but did not take the steam out of Taser on Monday.

Though shares fell briefly, they spent much of the session on positive ground, touching an intraday high of $139.69. Taser shares have a 52-week low of $3.65.

The stock goes for 310 times trailing earnings.

“I liked the management team, but I think the valuation is no longer justified in the fundamentals,” said Jim Oberweis Jr, a fund manager for Oberweis Asset Management Inc. The firm bought shares at about $10 and sold them at about $90.

Taser’s chairman said the company’s earnings justified the stock price. “Earnings are going up dramatically and so is the stock price,” said Phil Smith in an interview Monday.

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