Axon Enterprise (AXON -1.94%) posted another year of impressive growth and indicated it sees no sign of a slowdown ahead. Investors are buying in, sending Axon shares up 12.5% for the week as of Thursday afternoon, according to data provided by S&P Global Market Intelligence.
Axon’s strong record of outperformance powers on
Axon began as a maker of non-lethal Taser stun guns for law enforcement and has spent the last few years widening its portfolio to include body cameras and software systems to manage evidence and other recordkeeping. The company has been a big winner for investors, up 1,380% over the past decade, and continues to churn out impressive results.
The company earned $1.12 per share in the fourth quarter on sales of $432 million, easily surpassing both its internal targets and Wall Street expectations for $0.85 per share in earnings on sales of $422 million. Full-year revenue was up 31%, Axon’s fifth consecutive year of 25%-plus revenue growth.
This is no longer just a hardware business. Cloud and services revenue grew by 52% in 2023, and now accounts for about one-third of total sales.
Axon continues to see growth in its Taser business, especially overseas, and is layering new records management contracts with customers including the U.S. Department of Veterans Affairs. The government of Scotland is working with Axon to coordinate its digital evidence management system across courts, lawyers, government, and police.
In early 2023, Axon set a target to reach $2 billion in revenue by 2025. The company’s latest guidance has it generating sales of between $1.88 billion and $1.94 billion in 2024 and called for “20% or greater compound annual revenue growth” for the foreseeable future.
Is Axon a buy after another strong earnings report?
The biggest knock on this stock is valuation. Axon today trades at 70 times expected 2024 earnings and nearly 10 times expected revenue, meaning a lot of that future growth is already priced in.
But Axon has carried a sky-high multiple for years. If management can continue to produce the sort of growth figures it has generated in the last few years, as the guidance suggests, the stock is likely to continue along its upward trajectory.
Axon sees a total market opportunity of more than $60 billion in annual sales. Though the company is unlikely to capture anything near that total, the figure suggests there is plenty of opportunity ahead to add to revenue.
This stock is not for the risk-averse. Any stumble is likely to cause a sell-off as investors reconsider the assumptions driving that premium valuation. For those willing to accept that potential volatility in exchange for market-beating growth, Axon remains an attractive option.
Lou Whiteman has positions in Axon Enterprise. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool has a disclosure policy.
