Meet the Monster Stock That Continues to Crush the Market

Not many stocks have delivered a gain every year since 2015 and crushed the S&P 500 at the same time, but that's exactly what Axon Enterprise (NASDAQ: AXON) has done.

Over the last decade, the stock is up 2,050%, and it managed to register gains even when the broad market fell in 2022 and 2018. Axon was the rare tech stock to post gains in 2022 when most of the sector was plunging in the economic reopening phase of the pandemic.

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Axon is a unique company in the stock market and the business world. Its focus is law enforcement tech, and its mission is to preserve life.

It makes the Taser electrical stun gun, its first product and likely what the company is still best known for. It's also the leader in body cameras and has built a formidable cloud software ecosystem around products like Axon Records and Axon Evidence, helping law enforcement agencies better manage paperwork and find the information that they need.

Image source: Axon.

The secret to Axon's success

Axon's growth and success are due to two primary factors. First, the company has been able to leverage products like the Taser and Axon body cameras into a suite of software and services that generate high gross margins and create a sticky platform that continues to attract new law enforcement agencies and expand its relationships with existing customers.

Second, Axon has relentlessly innovated throughout its history, and that along with its focus on a niche market has helped it leave its competitors in the dust.

Its newest innovation is capitalizing on new generative artificial intelligence (AI) technology with Draft One, an AI software that drafts police report narratives based on auto-transcribed body-worn camera audio. That shows how advanced Axon's technology has become, and why the business continues to get stronger. It's able to incorporate new technology into its platform, serving law enforcement agencies in a way that no one else can. Its products, like Draft One, save officers time, allowing agencies to redeploy resources to higher-value areas that can't be outsourced or automated. Management said that Axon AI, which includes Draft One, led to a 67% decrease in time spent writing incident reports.

Where Axon stands today

Axon's most promising new product appears to be Draft One and related AI tools, but the company is delivering strong growth across the business.

In its third quarter, revenue rose 32% to $544 million. Axon Cloud sales were up 36% to $202.5 million; Sensors, which mostly account for body cameras, were up 18% to $120 million, and the Taser segment increased 37% to $221.7 million.

Profit margins are also expanding as the business scales up and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 54% to $145 million. The company also raised its guidance for the full year, calling for 32% revenue growth to $2.07 billion.

Is Axon stock a buy?

After doubling in value last year, Axon stock is pricey. The stock currently trades at a price-to-sales ratio of 24, placing high expectations on the stock and giving it a valuation that it needs to grow into.

That could pressure the stock in 2025 and put its streak of nine straight years of gains in jeopardy, but Axon's momentum and comprehensive business model should deliver more solid growth in the business.

Over the long term, Axon looks well-positioned to keep winning. It has one of the widest moats in the tech sector, given its clear leadership in law enforcement technology. Its track record of innovation has delivered impressive results, strengthening its value proposition to customers.

While the stock's valuation is worth questioning, the underlying business at Axon looks as strong as ever. For long-term investors, Axon still looks like a good buy.

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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.