AXON Stock Report – A Comprehensive Analysis
- Max Teh
- Sep 18, 2024
- 6 min read
Updated: Nov 21, 2024
Table of Contents:
Disclaimer: This communication is provided for information purposes only and is not intended as a recommendation or a solicitation to buy, sell or hold any investment product. Readers are solely responsible for their own investment decisions.
KEYPOINTS
🔑 Axon is poised for long-term growth, with a robust product ecosystem and expanding addressable market.
🔑 Strong financials, recurring revenue from multiple segments, and increasing international sales support Axon’s future potential.
🔑 Despite potential risks from emerging technologies, Axon’s high switching costs and continued innovation provide significant competitive advantages.
Introduction
Axon, a company known for its law enforcement technology, has been capturing investor attention due to its impressive growth and innovation. This report will delve into Axon's business segments, market opportunities, financial health, and future growth prospects to provide a well-rounded analysis for investors.
1) Segments
Axon’s business is divided into three main segments:
Axon Evidence (40%) – A digital filing cabinet that provides software services with recurring revenue.
Taser Devices (21%) – Non-lethal weapon hardware.
Cartridges (12%) – Products that support Taser devices, providing recurring revenue.
All business segments are currently growing.
a) Huge TAM?
Axon’s trailing twelve-month revenue (LTM) is USD 1.7 billion, representing only 2% of its total addressable market (TAM).
There is significant room for expansion geographically, particularly in Europe and Asia, where Axon’s market share remains low, allowing for high future penetration.
b) Growing Fast?
Market research estimates that Axon’s target market will grow at a compound annual growth rate (CAGR) of 12% until 2029.
Axon’s products have received positive customer feedback on platforms like FeaturedCustomers.com.
While the trend is stable, it may not fully reflect Axon’s primary customer base, which consists of law enforcement agencies.
However, search trends could be a useful indicator for Axon’s future expansion into civilian markets.
Axon’s website traffic is increasing, a positive sign of growing interest in its products.
4) Valuation
Axon is currently trading at 15.7x its sales, which seems slightly high. However, this valuation may decrease if the company continues to achieve its strong revenue growth.
P/E Ratio
At 101x, Axon’s price-to-earnings ratio is high, though it only became profitable two years ago.
As income growth is strong (18% last year, 194% trailing twelve months), the P/E ratio could improve over time.
5) Financials
a) Health
Net Debt: Axon has a healthy net cash position.
Cash & Cash Equivalents: strong position and in an increasing trend.
b) Growth
Revenue Growth: Axon has been growing at least 30% in the past 2 years and TTM figure.
Revenue Guidance/ Outlook: 2024 guidance suggesting 29.5% growth for full year Revenue figure (source: Axon Q2 2024 Shareholder letter), and overall Revenue Guidance trend is on increasing trend.
International Sales: The company's international growth rate is aligned with the 12% market growth rate for non-U.S. regions.
Cash Flows: Operating and free cash flow are both increasing.
R&D Spending: Steadily increasing
Refer to Employee Mix, for the company' emphasis on Tech & Engineering related roles.
Rule of 40: Despite being primarily a hardware company, Axon has managed to hit the Rule of 40 in the last three LTMs, which is impressive.
Gross Margin: Consistently at levels near 60%.
Gross Profits across various Business Segments: Gross Profits are increasing on various Business Segments level too signalling successful business expansion efforts.
Profit Margin: Axon turned profitable two years ago and now has a profit margin exceeding 16%.
Customer Lifetime Value (CLV): High, driven by significant switching costs.
Axon demonstrated strong performance in terms of growth, profitability, and financial health.
6) Management, Employees & Culture
a) Founder-Led?
Yes, Rick Smith, aged 53 (young), continues to lead the company.
Insiders, including key leadership, own up to 5% of the company’s stock.
Insiders transaction trends also reveal that they have been holding onto the majority of their shares, signaling confidence in the company's future. (source: simplywall.st > Recent Insider Transaction)
c) Management Team Quality
Management team's average tenure is 2.3 years (considered experienced).
Average age of management team is 45 years old (considered young)
(source: simplywall.st > Management)
d) Workplace Culture (Glassdoor ratings)
Overall rating is high (4/5) with 50% of ratings voted 5 and only low 11% voted 1.
70% would recommend to their friends
91% CEO approval rate
Ratings by various category appear to be signal healthy levels of employees satisfaction.
Axon HQ drone tour video
e) Employee Mix:
Currently, 36% of employees work in tech roles and 18% in sales/business development which signals alignment of company's talent pool with their future expansion & development plans.
Hiring Categories:
Nearly 48% of new hires are for tech roles, indicating a strong focus on innovation,
which is supported by their increase in R&D expenses.
has been increasing steadily since the last 12 years signalling company's expansion efforts.
Axon emphasizes its mission to "Protect Life" and has set a bold goal to reduce gun-related deaths by 50% in the next 10 years.
7) Risk Mitigation
Short Interests Level: It would take 3.8 days to cover current short positions, which is considered an acceptable ratio of short interest to trading volume. (source: marketbeat.com > Axon's short interest)
Moderate: since Axon derives 85% of its revenue from the U.S., but is venturing into new verticals and regions (refer to Huge TAM point above).
Threats: Emerging technologies like humanoid robots [source: voronoiapp] could pose risks to Axon’s core markets, though this is not expected to materialize in the near future.
Humanoid Robots may replace dangerous law enforcement related jobs in the foreseeable future
But none of them are manufactured and sold at a meaningful scale enough to impact these jobs yet
Furthermore, Axon is also continuously developing products in this area too, as is also signaled by their increase in R&D spending, hence this ought to be an area that investors continue to monitor for the next 2-5 years period.
High: Axon has high switching costs due to its ecosystem of bundled products, which work better when used together.
Ecosystem of Product Offerings:
Yes, Axon product offerings are complementary and works better together.
Axon's complementary suit of products sold in bundles.
Medium: The more data Axon collects via its digital platforms, the more it can improve its products.
9) Competitive Advantages
High in the U.S.: Axon has a head start with a large customer base.
Low to Moderate Internationally: Axon’s market share remains low outside the U.S.
10) Competitors Analysis
Wrap Technologies, one of the players who offer the most similar products to Axon in the market lags behind Axon in terms of
cash flow health
and employee satisfaction (source: Glassdoor).
11) Future Growth Opportunities
Axon’s potential lies in several areas:
Expansion into new:
Geographic regions (refer to Huge TAM)
Verticals outside law enforcement (refer to Customer Concentration Risk)
Expansion into schools & universities, using real-time crime centre technology and body-worn cameras (source: IPVM)
Schools are one of the most lucrative markets for video surveillance, especially with the concerns on the rise of mass shooting cases in the States.
2. Cross-selling and upselling to existing customers (refer to Product Ecosystem)
3. Tapping into the civilian market (refer to Taser Personal Protection site)
4. Expanding its aerial defense portfolio through acquisitions like Dedrone.
a. Case: Donald Trump’s recent assassination attempts increased awareness for importance of Drone Defense systems (source)
12) Others
Social Media Following: Axon has been increasing its presence on platforms like Instagram and X (formerly Twitter), aiding its plan to expand into civilian markets (refer to Future Growth).
13) Recommendation
BUY – With Axon expected to grow both its revenue and stock price by 19% over the next 1-5 years (refer to my calculations here) it is a strong candidate for long-term portfolios. It is also a solid holding for long-short equity hedge funds, given its resilience across economic cycles.
Disclaimer: the recommendation is made at the point of the original writing of this article on 18Sep2024, the author may change his recommendation towards the stock in the future due to fluctuating factors such as the stock's valuation, growth prospects & fundamentals.
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