3 Reasons to Buy Axon Stock Like There’s No Tomorrow
Does your portfolio need a new growth holding? Maybe one that’ll give it a little extra kick? Its stock is anything but cheap right now, but consider taking on a stake in Axon Enterprise (NASDAQ: AXON). And sooner rather than later.
Axon is one of the few names out there with clear upside rooted in equally clear market growth. Here’s the deal.
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What’s Axon?
Never heard of it? If not, it’s not exactly surprising. Although its $40 billion market cap isn’t small, it’s certainly not as big as most of the names now regularly discussed by investors and financial media.
You may be more familiar with Axon than you realize, however. Ever heard of a Taser gun? It’s not just a kind of conducted-energy weapon. It’s also a brand name, and arguably the premier name in the business.
Well, Axon owns the Taser brand. The company was previously named Taser International, in fact.
These weapons are still a big business, but that’s not all that Axon is these days. The organization is also well known for body cameras worn by law enforcement professionals. Its single-biggest business, though, is actually software.
Roughly one-fourth of the company’s top line comes from the tools that help police officers manage video evidence, generate transcripts of official interviews, automate reports, and the like. It’s now even dabbling in ground-based and aerial drones, for when the physical presence of a first responder is either too dangerous or simply impossible.
The obvious utilitarian nature of these offerings alone, however, isn’t the reason you might want to step into this stock as soon as you feasibly can.
Here are three cases to consider.
1. The company’s a market leader (for a reason)
If you seek out enough stock-picking advice, you’ll eventually run across the recommendation to buy a particular industry’s biggest player. More often than not, that’s the right move. Although you’ll find the occasional exception to this rule of thumb, in most cases, the top name in a business got there for good reason.
That’s certainly the case for Axon, which is technically the top dog in three different business lines, with an estimated market share ranging from 85% and 90%.
Granted, it had and has the unfair advantage of having no real rivals to speak of. Between the recognition of its brand names and a portfolio of patents that’s as broad as it is deep, no other outfit can get much of a toehold in any of its business lines.
Investors don’t want a fair fight, however. They want the companies behind the stocks they buy to enjoy strong pricing power and the ability to keep would-be competitors at bay.
2. Growth, growth, and more growth
And the company’s certainly flexing this muscle. Sales are up 33% year over year through the first three quarters of 2024, extending a trend that’s been in place since 2012.
More of the same is in the cards too, for its top as well as its bottom line. Indeed, Mordor Intelligence believes the global body-worn camera market is poised to grow at an annualized pace of 16% through 2030, while the conducted-energy weapon business is likely to grow an average of a little over 17% per year for the same time frame. These numbers jibe with market-leading Axon’s own data suggesting it’s only penetrated 35% of the potential U.S. market for its Taser guns, and even less everywhere else. Meanwhile, although its body cameras are more commonly used in Europe than in any other part of the world, it’s still only penetrated 30% of that region’s addressable market.
In other words, there’s plenty of room for the growth analysts are expecting.
Data source: StockAnalysis.com. Chart by author.
This growth of course will be accelerated by the growing amount of civil unrest, border security concerns, violent interactions with law enforcement, and the increasing amount of litigation stemming from all of these sociocultural shifts. These trends in turn ramp up the need for the software that adds functionality to Axon’s Taser guns and body-worn cameras.
3. Axon stock’s on sale — for now
Finally, now’s the time to buy Axon stock simply because shares are down 25% from their record high reached earlier this month.
Anyone keeping tabs on Axon probably already knows the reason. That is, evidentiary software outfit Flock Safety’s partnership with Axon has been severed, making the smaller company an Axon competitor. The development ultimately prompted a couple of key downgrades, which investors responded to in earnest.
As is so often the case though, the sellers overshot their target, overestimating the impact of the change. As Morgan Stanley analyst Meta Marshall suggests, “Given Axon was the one to terminate the relationship, we view it as more than likely that they have a workaround.” Investors don’t seem to agree yet, but give them time.
In the meantime, just remember: It’s Axon that has the powerful name and marketing reach to leverage. Not Flock.
The reward is well worth the modest risk
A risk-free pick? No, there’s no such thing. If Axon Enterprise continues to grow without crimping profit margins, others will join Flock as competitors. Also know that Taser isn’t the only conducted energy weapon brand, even if it is the best known.
The stock’s also expensive, priced at more than 80 times this year’s projected per-share profits of $6.32. If nothing else, Axon stock could continue dishing out volatility, some of which will certainly be uncomfortably bearish.
Take a step back and look at the bigger picture, though. You’re paying a premium, but Axon is a premium-commanding market leader on multiple fronts, and positioned to lead the impending growth for all of its businesses.
This might help: Despite a couple of recent downgrades, most analysts still consider this stock a strong buy, with a consensus price target of $659.17. That’s 26% above the stock’s present price, which isn’t a bad way to start out a new position.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
