Why Axon Enterprise Stock Was Tumbling Today
Key Points
Axon is selling $1 billion in convertible debt.
Investors tend to dislike such offerings because they're dilutive.
Axon hasn't announced the conversion price yet.
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Shares of Axon Enterprise (NASDAQ: AXON) were taking a dive today after the seller of TASER electrical weapons, body cameras, and related technology, announced a convertible debt offering.
Investors seemed to dislike the idea of being further diluted and that a company already trading at a high valuation was going further into debt.
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As of 1:59 p.m. ET, the stock was down 8.8% on the news.
Image source: Axon.
Axon tests shareholders
Growth stocks often fall when a company announces a follow-on offering or a debt sale, and the sell-off typically reflects investor impatience with profit growth. They'd prefer a company like Axon to be self-funding at this point.
This morning, Axon said it would sell $1 billion of 0% convertble senior notes with a maturity date of Sept. 15, 2031. A conversion price had not yet been determined and will be decided when the offering is priced.
Axon said it would use the proceeds for general corporate purposes, which could include providing capital to support its growth and acquiring or investing in product lines, products, services, or technologies.
What it means for Axon
Axon currently has $1.7 billion in debt, so adding another $1 billion is significant, especially for a company with less than $5 billion in tangible assets.
Axon has been growing quickly with revenue up 35% in its most recent quarter, and it's been investing aggressively in AI. In that light, the debt sale makes sense as a way to enable those investments.
A modest sell-off on the news would be understandable, but this seems overdone, especially as the stock has been a top performer and continues to deliver strong growth.
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Jeremy Bowman has positions in Axon Enterprise. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool has a disclosure policy.
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