Uncover the Fearsome Equity That Persistently Outperforms the Market's Performance
In the realm of stocks, few have managed to deliver gains every year since 2015 while crushing the S&P 500, and Axon Enterprise (AXON -0.62%) is one of those rare gems. Over the past decade, the stock has skyrocketed by an impressive 2,050%. Even when the broader market took a tumble in 2022 and 2018, Axon continued to register gains, making it a unique standout in the tech sector.
The company's unparalleled success is rooted in two primary factors. Firstly, Axon has successfully transformed its initial products like the Taser and body cameras into a suite of software and services that generate high gross margins, creating a sticky platform that consistently attracts new law enforcement agencies and strengthens its relationships with existing customers.
Secondly, Axon's commitment to innovation and niche market focus has allowed it to outpace its competitors. Its newest innovation, Draft One, an AI software that drafts police report narratives based on auto-transcribed body-worn camera audio, showcases this commitment and underscores the company's status as a technology leader in the law enforcement sector.
Axon's Q3 2024 revenue increased by 32% to $544 million, with cloud sales up 36%, sensors (mainly body cameras) up 18%, and the Taser segment soaring by 37%. Profit margins are also expanding, with adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rising 54% to $145 million.
The company's most promising new product appears to be Draft One and related AI tools, but Axon's growth is not limited to this sector. Its strong financial performance, decent margins, and net cash position of $1.15 billion in cash and cash equivalents, along with $679 million in debt, add to its robustness.
However, Axon's stock is priced high, with a price-to-sales ratio of 24, implying high expectations that the stock needs to grow into. This could potentially pressure the stock in 2025, but Axon's momentum and comprehensive business model suggest that it will continue to deliver solid growth in the long term.
The company's strong international market penetration, especially in Canada and Europe, and its strategic product launches, such as drones as first responders, contribute significantly to its success. Axon's integrated hardware and software ecosystem, AI-powered tools, and robust financial performance also fuel its growth.
Despite the potential challenges, for long-term investors, Axon still looks like a good buy given its wide moat in the tech sector and impressive track record of innovation.
Axon's robust financial performance, with its high gross margins and increasing revenue and profit margins, makes it an attractive option for investors looking to allocate their money in the finance sector. The company's strong financial position, including its net cash position and decent margins, allows it to continue investing in innovation and expansion, potentially leading to even higher returns in the future.