Smart investors like stock splits not only because they reduce a company's share price but also because they tend to spotlight stocks worth owning. I say that because stock splits are necessary only after substantial and lasting share price appreciation, which rarely happens to mediocre companies.
Shares of Axon Enterprise (AXON 0.77%) have surged 1,780% in the last two decades, which equates to 15.8% annually. That makes the company a stock split candidate in 2025.
More importantly, Wall Street is overwhelmingly bullish. Among the 15 analysts who follow Axon, 100% have a buy rating on the stock. No other company in the S&P 500 has a higher percentage of buy ratings, according to FactSet Research.
Here's what investors should know about Axon.
Axon is a public safety company with a strong position in several markets
Axon specializes in public safety. The company was originally called Taser International, a nod to its invention of the conducted energy devices sold under the brand name Taser. Axon still dominates that market, but it has more recently expanded into sensors and software, as detailed below:
- Sensors: Body cameras, in-car cameras, and drone-mounted cameras capture audio and video footage; those sensors can also send footage and location data to dispatchers and commanding officers. Axon's sensor ecosystem integrates with its software products.
- Software: Axon Evidence is a digital evidence management system that stores sensor data. Axon Records is a records management system that simplifies reporting using digital evidence from sensors. And Axon Respond is a situational awareness platform that provides real-time insight into situations as they evolve in the field.
Axon has several competitors in the sensors and software space, including Motorola and Oracle, but the company has a distinct competitive advantage in that most U.S. state and local law enforcement use Axon Tasers. Those pre-existing customer relationships have helped the company secure a leadership position in body-worn cameras and digital evidence management software.
Even so, Axon has hardly scratched the surface of its long-term opportunity. Total revenue increased 32% to $1.9 billion in the last four quarters, but that figure represents less than 3% of what management sees as a $77 billion addressable market. In particular, Axon has room to grow within the U.S. federal law enforcement and commercial enterprise verticals and law enforcement in international markets.
Axon is using artificial intelligence to simplify law enforcement workflows
Axon has incorporated artificial intelligence (AI) into several products. Its digital evidence management software leans on AI to automate the transcription and redaction of audio and video files. The Axon Fleet cameras utilize AI to read license plates across three lanes of traffic and alert the officer within a second when they find a match on an agency hotlist.
Draft One is generative AI software that uses body camera footage to automate the writing of police reports. Axon introduced the product in April 2024, and it reached a $100 million revenue pipeline more quickly than any product in company history. CEO Rick Smith told analysts on the second-quarter earnings call, "Our customers' response to Draft One is better than anything I've seen."
Image source: Getty Images.
Axon's stock is expensive, but Wall Street may be underestimating future earnings growth
In summary, Axon has a strong competitive position in multiple markets, but management sees plenty of room to grow. The company is executing on that opportunity by developing new products, pushing into new markets, and expanding into new geographies.
Unfortunately, the stock currently trades at 120 times adjusted earnings. That multiple looks very expensive, given that Wall Street expects earnings to increase at just 21% annually through 2025. However, patient investors should still consider buying a small position today.
Axon has reported earnings that exceeded the consensus estimate for the last 12 quarters, and it beat the consensus by 34% on average in the last six quarters. If that trend continues, Axon could grow its bottom line much faster than Wall Street anticipates in the coming years, which would make the current valuation look more reasonable in hindsight.
