3 Reasons We Love Axon (AXON)

January 17, 2025 at 04:02 AM EST

AXON Cover Image

What a fantastic six months it’s been for Axon. Shares of the company have skyrocketed 84.2%, hitting $585.45. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now still a good time to buy AXON? Or are investors being too optimistic? Find out in our full research report, it’s free.

Why Are We Positive On Axon?

Providing body cameras and tasers for first responders, AXON (NASDAQ: AXON) develops technology solutions and weapons products for military, law enforcement, and civilians.

1. Elevated Demand Drives Higher Sales Volumes

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful Law Enforcement Suppliers company because there’s a ceiling to what customers will pay.

Axon’s units sold punched in at 143,419 in the latest quarter, and over the last two years, averaged 44% year-on-year growth. This performance was fantastic and shows its products have a unique value proposition (and perhaps some degree of customer loyalty). Axon Units Sold

2. Increasing Free Cash Flow Margin Juices Financials

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, Axon’s margin expanded by 20.4 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose by more than its operating profitability. Axon’s free cash flow margin for the trailing 12 months was 12.3%.

Axon Trailing 12-Month Free Cash Flow Margin

3. New Investments Bear Fruit as ROIC Jumps

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We typically prefer to invest in companies with high returns because it means they have viable business models, but the trend in a company’s ROIC is often what surprises the market and moves the stock price. Over the last few years, Axon’s ROIC has increased. This is a good sign, but we recognize its lack of profits during the COVID era contributed to its high growth.

Axon Trailing 12-Month Return On Invested Capital

Final Judgment

These are just a few reasons why we're bullish on Axon, and after the recent rally, the stock trades at 105.7× forward price-to-earnings (or $585.45 per share). Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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