Axon Enterprise, Inc. (AXON), a leading supplier of police body cameras and law enforcement drones globally, kicked off 2024 on a strong note, with impressive financial performance and an optimistic outlook for the year ahead. As we gear up for their upcoming second-quarter earnings report, the big question is whether AXON can keep up its winning streak.

Forecasts indicate a 27.8% year-over-year revenue surge to $478.81 million, reflecting steady growth and financial resilience. However, analysts expect a 12.5% decline in the company’s EPS from the preceding year’s period to $0.97.

Axon has consistently exceeded revenue and EPS estimates in each of the trailing four quarters, including the first quarter. The company reported revenue of $461 million in the first quarter, up 34% year-on-year and above analysts' estimates of $441.57 million. On an adjusted basis, AXON reported earnings per share of $1.15, beating the consensus estimate of 95 cents per share.

The company's performance in the first quarter was buoyed by significant growth in Axon Cloud & Services revenue, which increased by 52% year-over-year to $176 million, reflecting robust adoption of new products and expansions within its customer base. Moreover, its strategic initiatives in AI and VR for officer training and the impending acquisition of Dedrone to bolster its Drone as First Responder (DFR) initiative are poised to drive future growth.

With an upgraded full-year revenue forecast of $1.94 billion to $1.99 billion and adjusted core profit expectations raised to $430 million to $445 million, Axon anticipates sustained demand for its software solutions, and the recently launched TASER 10 policing device.

Shares of AXON have gained 52.2% over the past nine months and 15.5% year-to-date to close the last trading session at $298.38. However, the stock has plunged 3.7% over the past three months.

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

Latest Innovations and Strategic Expansions

On June 25, the company announced that the United States Marshals Service (USMS) had deployed its next-gen TASER 10, a less-lethal energy weapon. In conjunction with this deployment, the USMS will pilot Axon's VR Training solution to enhance the accessibility and affordability of training. The TASER 10 offers advanced features, including the ability to deploy ten targeted probes up to 45 feet, improving safety and decision-making during law enforcement operations.

This new weapon will replace the USMS's existing TASER X26P devices and seamlessly integrate with Axon's body-worn cameras, ensuring automatic activation and recording of critical moments. This system is supported by Axon's FedRAMP High Authorized digital evidence management system, which enhances situational awareness and accountability.

In the same month, AXON and Skydio announced a new end-to-end solution for drones in public safety, including a scalable Drone as First Responder (DFR) solution. This allows agencies to deploy drones to emergency calls for real-time situational awareness, improving response times and safety.

The integration of Skydio's autonomous drones with AXON's suite of public safety products, including real-time operations and evidence management, and Dedrone's airspace awareness technology enables more effective and scalable drone deployment in emergencies.

In May, the company announced the acquisition of Dedrone, a global leader in airspace security. This acquisition aligns with AXON's mission to Protect Life by enhancing its ability to counter drone threats and advance the use of Drones as First Responders (DFR).

Dedrone's innovative technologies will bolster the company's efforts to safeguard communities and improve responses to critical incidents. The transaction, subject to customary closing conditions, is expected to be completed in the second half of 2024.

Mixed Financial Performance

For the first quarter that ended March 31, 2024, AXON’s net sales increased 34.3% year-over-year to $460.74 million. Its gross margin for the period stood at $260.05 million, up 27.4% year-over-year, while its adjusted EBITDA rose 67.3% from the year-ago value to $108.89 million. Moreover, its non-GAAP net income grew 37.4% and 30.7% from the previous year’s quarter to $88.85 million and $1.15 per share, respectively.

However, its income from operations decreased marginally year-over-year to $16.28 million. The company’s net cash flow from operating activities for the quarter stood at $15.94 million, while its adjusted free cash flow was negative $26.11 million. Also, as of March 31, 2024, AXON’s cash and cash equivalents decreased to $403.87 million, compared to $598.55 million as of December 31, 2023.

Stretched Valuation

In terms of forward non-GAAP P/E, AXON is trading at 68.31x, 276.8% higher than the industry average of 18.13x. Likewise, the stock’s forward non-GAAP PEG multiple of 4.52 is 172.7% higher than the industry average of 1.66x.

AXON’s forward EV/Sales and Price/Sales multiples of 11.22 and 11.39 are considerably above the respective industry averages of 1.75 and 1.43. Moreover, its forward Price/Book ratio of 11.05x compares to the industry average of 2.62x.

High Profitability

AXON’s trailing-12-month gross profit margin of 60.16% is 93.2% higher than the 31.14% industry average. Also, the stock’s trailing-12-month levered FCF margin of 11.85% is 86.9% higher than the industry average of 6.34%. However, its trailing-12-month net income margin of 15.60% is 157.7% higher than the industry average of 6.06%.

Additionally, the stock’s trailing-12-month ROCE and ROTA of 16.29% and 7.25% are 31.2% and 48.1% higher than the industry averages of 12.41% and 4.90%, respectively.

POWR Ratings Reflect Uncertainty

AXON’s mixed fundamentals are reflected in its POWR Ratings. The stock has an overall rating of C, which translates to Neutral in our proprietary rating system. The POWR Ratings are calculated by taking into account 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 grade for Quality, in sync with its higher-than-industry profitability.

However, with a 24-month beta of 1.61, the stock has earned a grade C for Stability. Also, AXON’s D grade for Value is justified by its stretched valuation.

AXON is ranked #48 out of 86 stocks in the Industrial - Equipment industry. Click here to access AXON’s Growth, Momentum, and Sentiment ratings.

Bottom Line

While AXON's last quarterly report showed impressive revenue growth and improved profitability, concerns over stretched valuations, operational losses, and an anticipated EPS decline in the upcoming quarterly report raise concerns about its near-term performance. Considering these factors, it could be wise for investors to wait for a better entry point in the stock.

How Does Axon Enterprise, Inc. (AXON) Stack Up Against Its Peers?

AXON has an overall rating of C, which equates to a Neutral rating. You may check out these A-rated (Strong Buy) stocks within the Industrial - Equipment industry: LSI Industries Inc. (LYTS), NL Industries, Inc. (NL), and Konica Minolta, Inc. (KNCAY). To explore more A and B-rated industrial equipment stocks, click here.

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AXON shares were trading at $302.14 per share on Monday afternoon, up $3.76 (+1.26%). Year-to-date, AXON has gained 16.96%, versus a 17.56% rise in the benchmark S&P 500 index during the same period.

Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.

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