Smart investors like stock splits not only because they reduce a company’s stock price, but also because they tend to highlight worthwhile stocks. I say that because stock splits are only necessary after a sustainable and lasting share price appreciation, which rarely happens to mediocre companies.
Actions of Axon Enterprise (AXON 0.77%) they have increased 1,780% in the last two decades, which is equivalent to 15.8% per year. That makes the company a stock split candidate in 2025.
More importantly, Wall Street is mostly bullish. Among the 15 analysts who follow Axon, 100% have a buy rating on the stock. No other company in the S&P 500 has a higher percentage of buy ratings, second FactSet Research.
Here’s what investors need to know about Axon.
Axon is a public safety company with a strong position in many markets
Axon specializes in public safety. The company was originally called Taser International, a nod to its invention of the conducted energy devices sold under the Taser brand. Axon also dominates that market, but has more recently developed into sensors and software, as detailed below:
- Sensors: Body cameras, in-car cameras, and drone-mounted cameras capture audio and video footage; those sensors can also send footage and location data to dispatchers and commanders. Axon’s sensor ecosystem integrates with its software products.
- Software: Axon Evidence is a digital evidence management system that stores sensor data. Axon Records is a records management system that simplifies reporting using digital evidence from sensors. And Axon Respond is a situational awareness platform that provides real-time insight into situations as they evolve in the field.
Axon has many competitors in the sensor and software space, including Motorola and Oraclebut the company has a distinct competitive advantage in that most state and local law enforcement agencies use Axon Tasers. Those pre-existing customer relationships have helped the company secure a leadership position in body-worn cameras and digital evidence management software.
Even so, Axon has barely scratched the surface of its long-term opportunity. Total revenue rose 32% to $1.9 billion over the past four quarters, but that figure represents less than 3% of what management sees as a $77 billion addressable market. In particular, Axon has room to grow in the US federal law enforcement and commercial enterprise verticals and law enforcement in international markets.
Axon uses artificial intelligence to streamline law enforcement workflows
Axon has incorporated artificial intelligence (AI) into many products. Its digital evidence management software relies on AI to automate the transcription and redaction of audio and video files. Axon Fleet’s cameras use AI to read license plates in three lanes of traffic and alert the officer within a second when they find a match on the agency’s list.
Draft One is generative AI software that uses body camera footage to automate the writing of police reports. Axon introduced the product in April 2024, and it reached a $100 million revenue pipeline faster than any product in the company’s history. CEO Rick Smith told analysts on the second quarter results call, “Our customers’ response to Draft One is better than anything I’ve seen.”
Image source: Getty Images.
Axon’s stock is expensive, but Wall Street may be underestimating future earnings growth
In summary, Axon has a strong competitive position in many markets, but management sees a lot of room for growth. The company executes this opportunity by developing new products, pushing into new markets and expanding into new geographies.
Unfortunately, the stock currently trades at 120 times adjusted earnings. That multiple seems very expensive, given that Wall Street expects earnings to rise to just 21% annually through 2025. However, patient investors should still consider buying a small position today.
Axon has reported earnings that exceeded the consensus estimate for the past 12 quarters, and has beaten the consensus by 34% on average over the past six quarters. If this trend continues, Axon could grow its bottom line much faster than Wall Street anticipates in the coming years, which would make the current valuation more reasonable in retrospect.