Why Axon Enterprise Stock Plunged Week
Key Points
There was no company-specific news out on Axon last week.
Instead, a broader sell-off in high-priced SaaS stocks took down Axon as well.
The stock is still expensive at P/S ratio of 16, but the pullback looks like a buying opportunity.
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Shares of Axon Enterprise (NASDAQ: AXON), the maker of TASER electrical weapons and body cameras, were taking a dive this week, even though there was no major company-specific news out on it.
Instead, the sell-off seemed to be part of a broader wipeout in software-as-a-service (SaaS) stocks due to concerns about disruption from AI and lofty valuations in the sector.
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As of Friday at 12:09 p.m. ET, Axon stock was down 19.1% for the week. As the chart below shows, the stock primarily fell on Wednesday and Thursday.
What a no-news sell-off means for Axon
A sell-off of this degree without a specific cause is unusual for any stock, especially one as established as Axon, but there was a clear sentiment shift in software this week as industry titans like Microsoft, ServiceNow, and SAP all fell double digits after reporting earnings, though their results were mostly in line with estimates.
To the extent that software is under threat from AI, Axon seems relatively insulated. The company has built an impressive network of competitive advantages with hardware like TASERs and body cameras that connect with software that manages things like evidence, records, and investigations. That strategy and a series of acquisitions have made the company the clear leader in law enforcement technology, and even with AI shaking up the competitive landscape, it will be difficult to unseat Axon's leadership role.
Image source: Axon.
What's next for Axon
Following the sell-off, Axon now trades at a price-to-sales ratio of 16. That's far from cheap, but it is a significantly better price than the company has traded at for most of the last year-and-a-half.
Axon has also been delivering excellent results in recent quarters, meaning there's little indication that the business is in any trouble.
The company is due to report fourth-quarter earnings on Feb. 24. Analysts are expecting revenue to grow 31.3% to $755.3 million, but see adjusted earnings per share falling from $2.08 to $1.60 due to a ramp-up in spending associated with recent acquisitions and investments in new technologies like AI.
The report will be a major test for Axon, and will give the stock an opportunity to bounce back.
Generally, no-news sell-offs have proven to be good buying opportunities, and this one looks similar.
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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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