Axon Enterprise, Inc. (AXON), a leading police body cameras and law enforcement drones provider globally is set to release its second quarter 2024 financial results after the market closes on Tuesday, August 6, 2024. During the first quarter, the company reported impressive financial performance with revenue of $461 million indicating improvement of 34% year-on-year.

During the first quarter, AXON’s next-gen less-lethal energy weapon, TASER 10 was deployed by United States Marshals Service (USMS) for training and equipping Deputy U.S. Marshals in fugitive apprehension, judiciary security, and safeguarding witnesses exhibiting the robust demand for its software solutions.

Also, the company extended its alliance with Skydio for delivering a new end-to-end solution for drones in public safety, including a scalable Drone as First Responder (DFR) solution. The strategic initiatives strengthen AXON’s products in law enforcement technology and its market growth prospects.

Further, Axon’s recent product innovations like its latest AI-driven product, Draft One, a revolutionary new software tool to draft high-quality police report narratives, and The Axon mobile app, the first mobile app which brings both digital evidence and records management into the same user interface reflects its commitment to provide innovative solutions.

The company raised its full year 2024 outlook. AXON expects its revenue to range from $1.94 billion to $1.99 billion, representing nearly 26% annual growth at the midpoint. Also, the company expects adjusted EBITDA between $430 million and $445 million, implying adjusted EBITDA margin of 22%.

Shares of AXON have gained 23.6% over the past six months and 72.5% over the past year to close its last trading session at $310.59. However, over the past three months, the stock grew marginally only.

Let’s look at factors that could influence AXON’s performance in the upcoming months.

Positive Recent Developments

On June 25, AXON announced that the United States Marshals Service (USMS) deployed its next-gen less-lethal energy weapon, TASER 10. The USMS will also pilot AXON’s VR Training solution to support the deployment of TASER 10 and to offer more affordable and accessible training across a variety of immersive real-world scenarios.

The TASER 10 provides advanced features, like, its ability to deploy ten targeted probes up to 45 feet, enhances safety and decision-making during law enforcement operations. It will play an essential role for the USMS while training and equipping Deputy U.S. Marshals in fugitive apprehension, judiciary security, and safeguarding witnesses.

Further, on June 20, AXON and Skydio, the leading U.S. drone manufacturer and the world leader in autonomous flight, partnered to deliver an end-to-end offering for drones in public safety, including a scalable Drone as First Responder (DFR) solution. It will allow public safety agencies to customize and scale drones and DFR programs seamlessly.

This expanded the companies’ alliance and will bring technology and services to advance rapid incident response, augment resource allocation, and improve officer and community safety.

Also, on May 6, the company entered into a definitive agreement to acquire Dedrone, a global leader in airspace security. Dedrone’s innovative technologies will contribute to AXON’s mission to Protect Life by offering immense value to public safety and national security entities worldwide.

The acquisition will further strengthen AXON's ability to help customers safeguard communities, improve response to critical incidents and protect lives in varied places.

Mixed Financials

For the first quarter that ended March 31, 2024, AXON’s net sales increased 34.3% year-over-year to $460.74 million, of which its net sales from products grew 24% from the year-ago value to $272.05 million. However, its income from operations decreased marginally year-over-year to $16.28 million.

Furthermore, the company’s non-GAAP net income of $88.85 million and $1.15 per common share, indicates growth of 37.4% and 30.7% from the prior year’s quarter, respectively. And its adjusted EBITDA rose 67.3% year-over-year to $108.89 million.

Also, AXON’s adjusted free cash flow was negative $26.11 million. The company’s cash and cash equivalents decreased to $403.87 million as of March 31, 2024, compared to $598.55 million as of December 31, 2023.

Solid Historical Growth

AXON’s revenue grew at CAGR of 32.1% over the past three years, while its tangible book value improved at a CAGR of 13.3% over the same timeframe. The company’s total assets and levered free cash flow increased at respective CAGRs of 37.1% and 106.6% over the past three years.

Favorable Analyst Estimates

Analysts expect AXON’s revenue for the second quarter (ended June 2024) to come in at $477.94 million, indicating an increase of 27.6% year-over-year. However, the consensus EPS estimate of $0.98 for the same period reflects a decrease of 11.9% year-over-year. Furthermore, the company has topped the consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year (ending December 2024), the company’s revenue and EPS are anticipated to grow 26.6% and 6.9% year-over-year to $1.98 billion and $4.43, respectively. In addition, Street expects its revenue and EPS for the fiscal year 2025 to grow 21.3% and 24.5% from the prior year to $2.40 billion and $5.51, respectively.

High Profitability

AXON’s trailing-12-month gross profit margin and net income margin of 60.16% and 15.60% are 92.7% and 154.7% higher than the industry averages of 31.21% and 6.13%, respectively. The stock’s trailing-12-month levered FCF margin of 11.85% is considerably higher than the industry average of 6.35%.

Additionally, the stock’s trailing-12-month ROCE and ROTA of 16.29% and 7.25% are 29% and 46.3% higher than the industry averages of 12.62% and 4.96%, respectively.

Stretched Valuation

In terms of forward non-GAAP P/E, AXON is currently trading at 70.15x, 260.6% higher than the industry average of 19.46x. Also, the stock’s forward EV/Sales and Price/Sales of 11.67x and 11.85x are significantly higher than the industry average of 1.86x and 1.52x, respectively.

In addition, the stock’s forward EV/EBITDA and Price/Book of 52.39x and 11.50x are 346.6% and 306.1% higher than the industry averages of 11.73x and 2.83x, respectively.

POWR Ratings Reflect Uncertainty

AXON’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, translating to a Neutral in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. AXON has a B for Quality, consistent with its higher-than-industry profitability. It also has a B grade for Growth, in sync with its stellar performance in the last reported quarter.

However, the stock has a D grade for Value, consistent with its stretched valuation.

AXON is ranked #45 among the 86 stocks in the Industrial - Equipment industry.

Beyond what I have stated above, we have also given AXON grades for Stability, Sentiment, and Momentum. Get access to all the AXON ratings here.

Bottom Line

AXON’s last quarterly report showed impressive revenue growth and improved profitability hailing high hopes for the next quarterly report to be announced soon. The company’s strong presence across various government organizations, together with its innovative product portfolio expansion and strategic acquisition demonstrate its strength and efficiency of operating model.

However, given its stretched valuations, operational losses, and an anticipated EPS decline in the upcoming quarterly report raise, waiting for a better entry point in this stock seems wise now.

Stocks to Consider Instead of Axon Enterprise, Inc. (AXON)

Given its near-term uncertain prospects, the odds of AXON outperforming in the weeks and months ahead are compromised. However, there are many industry peers with much more impressive POWR Ratings. So, consider these A (Strong Buy) or B (Buy) stocks from the Industrial - Equipment industry instead:

LSI Industries Inc. (LYTS)

NL Industries, Inc. (NL)

Konica Minolta, Inc. (KNCAY).

For exploring more A and B-rated software stocks, click here.

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AXON shares were trading at $309.00 per share on Monday afternoon, down $1.59 (-0.51%). Year-to-date, AXON has gained 19.61%, versus a 15.38% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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