Investment idea # 5
Buy Axon Enterprise, Inc (AAXN US)
Today we are providing two possible ways of investing in the stock for two types of investors: momentum players and growth investors.
Company Description and Operations
Axon Enterprise, Inc, formerly known as TASER International, was founded by Patrick W. Smith and Thomas P. Smith in Scottsdale, Arizona in 1993. The company specializes in designing and manufacturing non-lethal weapons for military and civilian use.
Axon aims to support social justice by bringing transparency and accuracy in the relationship between civilians and law enforcement officers. In 2014, the company conducted a field study in collaboration with Mesa Police Department, Arizona, to test the Axon Flex on-officer body camera system. The research, which lasted for twelve months, during which officers had to use Axon’s cameras when on the field, resulted in the reduction of citizens’ complaints by 88% and the use of force by police officers by 42%.
Diagram 1. Axon Enterprise, Inc. Company Mission
Axon is the undisputable leader in the industry of on-body cameras, supported by its Axon cloud service. The company estimates that 17000 out of 18000 US police agencies procure Taser devices and around 70% of US patrol officers carry the device.
Diagram 2. Axon key metrics
It operates through two main segments: TASER Weapons Segment and Software and Sensor Segment, which contribute to 60% and 40% of the revenue respectively.
Diagram 3. Axon Revenue Growth by Product
TASER Weapons Segment had long been the main field of operation until recently, and the company used to carry a similar name. In this segment, it has been providing law enforcement officers with 3 models of electrical weapons: Taser X26P, Taser X2 and Taser 7. In 2009, it introduced the Axon Pro, body-worn camera, which later was upgraded by Axon Flex and Axon Body models. Also, consumers may purchase three models of self-defense weapons: Taser Pulse, Taser Strikelight and Taser Bolt.
Software and Sensor Segment took a start after the company unveiled its first body-cameras eleven years ago and since then it has been transforming itself to become a technology company. At that time, it launched Evidence.com, a cloud-hosting website for law enforcement departments to store videos from their Body-cams. This segment’s contribution to the total revenue had been increasing gradually since then and it saw a rapid jump in recent years. In 2017, TASER International renamed itself to Axon Enterprise, Inc. to further promote its brand as a technology company.
Growth Opportunity
According to the latest investor presentation, Axon sees its growth in four key areas: 1) TASER, 2) Sensors and digital evidence management, 3) Records management systems, 4) Computer-aided dispatch software (mid-2020).
Axon’s flagship product — TASER is seeing an annual gradual growth rate of 16%, and the company expects this trend to continue in the future. Alongside this, Axon will continue to invest in sensors and digital investment management, which has seen an accelerated growth rate in recent years. In the nearest future, Axon is expected to generate the biggest portion of its revenue through this segment.
Graph 1. Revenue Growth by Segment
Axon’s future growth looks very bright as it faces no significant competition in the field. In spite of this, Axon continues to invest in R&D and to explore other areas, where it could offer its solutions. For example, last week the company announced its first partnership in the medical services sector. First Ambulance Provider Cypress Creek EMS will deploy 37 Axon Fleet 2 in-car video systems across its vehicles, while backing up the digital evidence from the field on Axon’s cloud server — Evidence.com.
Graph 2. US Major City Chiefs by vendor
According to the table below, investors foresee a high growth from Axon in the coming years. The revenue is projected to grow more than 20% annually over the next 3 years. Meanwhile, its EPS and EBITDA will more than triple compared to the last reported the year 2018 over the same period. High-performance expectations are supported by the fact, that out of 14 analysts surveyed by Bloomberg, 10 of them recommend to buy the stock, while the rest give a ‘hold’ rating and there is no recommendation to sell.
Table 2. Axon Consensus Overview
Technical Analysis
The chart below illustrates the price action for Axon stock for the whole period since it went public in 2001. We are looking at the chart formed from the weekly bars due to high volatility of the stock in smaller time-frames and we are opening our position for the long haul. As can be seen, the stock saw a monstrous run between 2003 and 2005 and consolidated over the next 8 years. It retested that high almost a decade after and managed to break it in 2018. Since then, the stock has been forming an ascending triangle pattern with an expectation of further breakout. Should the breakout be confirmed, we may expect the stock price to double over the next couple of years.
Graph 4. Axon Stock Price Action
The Bottom Line
Axon Enterprise is offering the market an exclusive product and it is a sole leader in the industry. We believe that Axon’s Bodycams and Cloud Services will continue to grow in popularity across new markets and the company has a huge potential to expand its international reach. At the same time, we are cautious about existing risks for the company such as high valuation and its Antitrust Fight against FTC. Although Axon has a strong case against FTC, in case of a failure, it may confront considerable damage to its enterprise value. However, we think that Axon will be able to overcome the challenges, and therefore, we have decided to include the stocks of the company in our long-term portfolio.
Disclosure
The purpose of this publication is to share the knowledge and experience we have in the field of finance and investment. Every week, we are going to provide the audience with updates on our stock market portfolio and share fundamental and technical analysis on companies, which are going to be included in our portfolio. Please, bear in mind that our publications do not offer investment advice, and nothing in them should be construed as investment advice or recommendation to buy or sell any financial security. Our publications provide only information and education for investors who can make their own investment decisions. To learn more about us, please go through the links provided below.
Keywords: FinTech, Finance, Investment idea, Axon Enterprise, Inc, Stock market
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