Axon Enterprises (NASDAQ: AXON) is a promising US tech stock that’s enjoyed a decade of exceptional growth, climbing 1,862% since 2014.
Those that don’t recognize the brand may be more familiar with its previous name: Taser. Yup, it’s the company responsible for the well-known defensive weapons by the same name.
The company’s product portfolio has expanded rapidly in the past few years. It now includes a wide range of defensive technologies, with core products being the Taser 10 and Body Camera 4. It also develops proprietary software to support military and police operations.
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Size and competition
With a $27bn market cap, it’s slightly larger than Super Micro Computer, a tech stock that’s been making waves lately in the semiconductor space. It’s small compared to the likes of Nvidia but its growth in the past few years has been similar.
But competitor-wise, Axon is in a league of its own. It faces some challenges from body camera maker Digital Ally and AI software developer Tyler Technologies. But as a full-service military-grade self-defence company, few others can compare.
With products and software that seamlessly integrate, the company leaves little reason for customers to look elsewhere. This speaks volumes not only to its savvy business strategy but also to its future prospects.
Naturally, the performance has attracted the attention of major brokers and investment managers. The Wisconsin-based wealth manager Baird recently reiterated its ‘outperform’ rating for Axon, while raising its price target from $360 to $400.
According to its most recent Form 13F filing, Ground Swell Capital increased its position in Axon by 246%. It’s now the sixteenth-largest holding in its portfolio.
Risks
This week, Axon president Joshua Isner sold over $9m of his stock in the company. The sales constitute about 10% of his holdings. While this could be for personal financial reasons, we can’t rule out that he may lack confidence in the company’s future.
If he fears the firm could under-deliver in the next earnings results, the sale may be strategic. But looking at current performance, there’s little evidence to suggest this, so I’m not too concerned. In August, the company raised its full-year revenue guidance by 2.5%. However, in light of the recent growth spurt, earnings are expected to decline from $233m to $183m by the end of the year.
Furthermore, any reduction in crime or military activity would mean less revenue and profits for the company.
The next Nvidia?
Like most high-growth tech stocks, Axon looks very overvalued compared to a typical UK stock. Its forward price-to-earnings (P/E) ratio is 133, meaning the share price is far higher than the earnings it makes per share.
Even for a tech stock, this is high. Nvidia, by comparison, has a P/E ratio of 54. That does curb my enthusiasm somewhat, as it could limit short-term growth. Most undervalued stocks I evaluate have P/E ratios below 20.
So while recent political unrest has sparked high demand for Axon’s products, it operates in a limited market. To reach the £1trn+ market cap levels of Nvidia it will need to branch out. Whether or not it can do that remains to be seen.
Still, I’m very bullish on the stock because I think it exhibits the management style and business strategy to be a prominent part of the next wave of tech giants.
