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Axon Enterprises (NASDAQ: AXON) is an up-and-coming US technology stock that has enjoyed a decade of exceptional growth, up 1,862% since 2014.
Those who don't recognize the brand may be more familiar with its former name: Taser. Yes, it's the company responsible for the well-known defensive weapons of the same name.
The company’s product portfolio has expanded rapidly in recent years. It now includes a wide range of defensive technologies, with the core products being the Taser 10 and the Body Camera 4. It also develops proprietary software to support military and law enforcement operations.
Size and competition
With a market cap of $27 billion, it is slightly larger than Supermicrocomputera tech stock that has been causing a stir lately in the semiconductor sector. It is small compared to others like Nvidia but its growth in recent years has been similar.
But when it comes to competition, Axon is in a league of its own. It faces some challenges from the body camera maker. Digital ally and artificial intelligence software developer Tyler TechnologiesBut as a full-service, military-grade self-defense company, few others can compare.
With products and software that integrate seamlessly, the company leaves little reason for customers to look elsewhere, which speaks volumes not only to its smart business strategy but also to its future prospects.
Naturally, the performance has attracted the attention of major brokers and investment managers. Wisconsin-based wealth manager Baird recently reiterated its “outperform” rating on Axon, while raising its price target from $360 to $400.
According to its latest Form 13F, Ground Swell Capital increased its stake in Axon by 246%. It is now the 16th largest holding in its portfolio.
Risks
This week, Axon Chairman Joshua Isner sold over $9 million of his shares in the company. The sales represent about 10% of his holdings. While this could be due to personal financial reasons, we cannot rule out that he lacks confidence in the company's future.
If you fear the company will not deliver on expected results in the next few years, a sale may be strategic. But looking at current performance, there is little evidence to suggest that this is the case, so I am not overly concerned. In August, the company raised its full-year revenue forecast by 2.5%. However, in light of the recent growth spurt, profits are expected to decline from $233 million to $183 million by the end of the year.
Furthermore, any reduction in crime or military activity would mean less revenue and profits for the company.
The next Nvidia?
Like most high-growth tech stocks, Axon looks very overvalued compared to a typical UK share. Its forward price-to-earnings (P/E) ratio is 133, meaning the share price is much higher than the earnings it generates per share.
Even for a tech stock, this figure is high. Nvidia, by comparison, has a price-to-earnings ratio of 54. This dampens my enthusiasm a bit, as it could limit near-term growth. Most of the undervalued stocks I evaluate have price-to-earnings ratios below 20.
While recent political unrest has created huge demand for Axon's products, the company operates in a limited market. To reach Nvidia's £1 trillion-plus market capitalisation levels, it will need to diversify. Whether it can do so or not remains to be seen.
Still, I'm very bullish on the stock because I think it displays the management style and business strategy needed to be a prominent part of the next wave of tech giants.
