Valued at $46 billion by market cap, Axon Enterprise (AXON) develops, manufactures, and sells CEDs, or conducted energy devices, under the TASER brand in the U.S. and other international markets. The company offers hardware and cloud-based software solutions that enable law enforcement agencies to capture, store, manage, share, and analyze video and other digital evidence. Its products and services include the TASER lineup of devices, body cameras, in-car systems, evidence management software, cartridges, batteries, and more.
The company went public in June 2001, and has since returned a monstrous 105,800% to shareholders. This means a $100 investment in AXON stock soon after its initial public offering would be worth close to $106,000 today.
This outperformance has continued in 2024, as well, with the stock returning 134% year-to-date. Let’s see if you should invest in AXON stock at its current valuation.
A Strong Performance in Q3 of 2024
Axon primarily provides products and solutions to law enforcement agencies. While its portfolio of Taser products has been around for quite some time, Axon is expanding into other verticals, driving revenue growth. In fact, Axon has increased sales by at least 25% year over year for 11 consecutive quarters. In Q3, its sales rose by 32% year over year to $544 million.
In 2024, it projects revenue of $2.07 billion and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $510 million. Earlier this year, it forecast 2024 sales between $2 billion and $2.05 billion and EBITDA between $460 million and $475 million. Axon's international bookings reached near-record levels, rising 40% from Q2 of 2024. In the first nine months of 2024, Axon’s international bookings rose by 40% year over year.
One key reason for Axon’s market-thumping returns is its steady growth rates. In the last 10 years, it has increased revenue at a compounded annual growth rate of 28.5%, while earnings growth for the period stood at 26.4%.
Axon generates a significant portion of sales from law enforcement agencies that sign long-term contracts, resulting in a steady stream of recurring revenue, while providing investors with top-line visibility.
During the Q3 earnings call, Chief Revenue Officer Joshua Isner said, “Beyond our state and local business, our U.S. Federal bookings came in higher than what we did in a full year just a few years ago, with four of our top 10 domestic deals in the quarter coming from federal customers across several agencies including DHS, IRS, and Amtrak.”
Axon ended Q3 with annual recurring revenue (ARR) of $885 million, up 36% year over year. Its net revenue retention rate stood at 123%, which means that existing customers have increased spending by 23% in the last 12 months. Further, its future contracted revenue rose 33% to $7.7 billion, while its bookings exceeded $1 billion at the end of Q3.
Is Axon Stock Overvalued?
Priced at 156x trailing earnings, AXON stock trades at a premium. Analysts tracking the hardware company expect adjusted earnings to expand by 22% annually in the next two years. Notably, revenue is estimated to increase by 27.4% annually between 2023 and 2025. While Axon’s growth forecasts are strong, the stock is extremely overvalued at the current price.
Out of the 15 analysts covering AXON, 12 recommend “strong buy,” two recommend “moderate buy,” and one recommends “hold,” for a “strong buy” consensus.
However, the average target price for AXON is $529.78, more than 12% below the stock's current price.
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