Why Axon Enterprise Stock Is Plummeting This Week
Key Points
Axon Enterprise grew sales by 31% in the third quarter compared to last year.
However, its adjusted earnings per share did match analysts' expectations, so the stock tumbled.
Ultimately, Axon's actual operations looked excellent yet again, but the market was hoping for perfect results.
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Shares of leading public safety technology company Axon Enterprise (NASDAQ: AXON) are down 18% as of 1 p.m. ET on Thursday, according to data provided by S&P Global Market Intelligence.
Axon reported solid third-quarter earnings on Tuesday, but adjusted earnings per share fell short of Wall Street's expectations, so the stock slid this week.
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Regardless of the market's reaction, Axon delivered sales growth of 31%, marking its seventh consecutive quarter of an increase above 30%.
Summing things up, the market priced Axon for perfection, and its otherwise excellent results came up just shy of these lofty expectations.
Image source: Getty Images.
Axon's new growth areas
Axon's ability to innovate and recreate its products may be its most powerful trait as a stock. This innovation shows up in its gradually increasing net revenue retention rate (NRR) of 124%.
This NRR rate shows how much more existing customers spend from one year to the next, and a score above 120% -- like Axon has delivered for years now -- is excellent.
Growing its future contracted bookings by 39% to $11.4 billion, Axon continues to see its newer products rapidly adopted and put to use by customers.
For example, the company's nascent platform solutions unit grew sales by 71% and now equals 9% of total sales. These sales come from many of Axon's new growth areas, like fleet in-car video, interview room solutions, drones and counterdrone equipment, and virtual reality training hardware.
Furthermore, Axon's international sales nearly doubled from last year, yet still only account for 16% of the company's revenue.
As promising as the company looks, its price-to-sales ratio of 20 remains well above its 10-year average of 11, so investors may want to add to a position in Axon over time rather than going all in at today's lofty valuation.
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Josh Kohn-Lindquist 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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