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Will Axon Enterprise (AXON) post strong second-quarter earnings?
Will Axon Enterprise (AXON) post strong second-quarter earnings?

Axon Enterprise, Inc. (AXON), a global leader in body cameras for police and drones for law enforcement, started 2024 strong with impressive financial results and an optimistic outlook for the year ahead. As we prepare for the upcoming second quarter earnings report, the big question is whether AXON can continue its winning streak.

Forecasts call for revenue to increase 27.8% year-over-year to $478.81 million, reflecting steady growth and financial stability. However, analysts expect the company’s earnings per share to decline 12.5% ​​from the same period last year to $0.97.

Axon has consistently beat revenue and earnings estimates in each of the last four quarters, including the first quarter. The company reported first-quarter revenue of $461 million, up 34% year over year and above analyst estimates of $441.57 million. On an adjusted basis, AXON reported earnings per share of $1.15, beating the consensus estimate of 95 cents per share.

The company’s first quarter performance was boosted by significant growth in Axon Cloud & Services revenue, which increased 52% year-over-year to $176 million, reflecting strong new product launches and expansions within its customer base. In addition, the company’s strategic initiatives in AI and VR for officer training and the pending acquisition of Dedrone to strengthen its Drone as First Responder (DFR) initiative will drive future growth.

Axon expects raised full-year revenue guidance of $1.94 billion to $1.99 billion and adjusted core earnings guidance of $430 million to $445 million, and expects continued demand for its software solutions and the recently launched TASER 10 police device.

AXON shares have gained 52.2% over the past nine months and 15.5% year-to-date, closing the last trading session at $298.38. However, over the past three months, the stock has fallen 3.7%.

Let’s look at factors that could affect AXON’s performance in the coming months.

Latest innovations and strategic expansions

On June 25, the company announced that the United States Marshals Service (USMS) had Next generation TASER 10a non-lethal energy weapon. In conjunction with this deployment, the USMS will test Axon’s VR training solution to improve accessibility and affordability of training. The TASER 10 offers enhanced features, including the ability to deploy ten targeted probes up to 45 feet away, improving safety and decision-making in law enforcement operations.

This new weapon will replace the USMS’ existing TASER X26P devices and will integrate seamlessly with Axon’s body-worn cameras, ensuring automatic activation and recording of critical moments. This system is supported by Axon’s FedRAMP High Authorized digital evidence management system, which improves situational awareness and accountability.

That same month, AXON and Skydio announced a new end-to-end solution for drones in public safety, including a scalable drone-as-first-responder (DFR) solution that enables agencies to use drones on emergency calls to gain real-time situational awareness, improving response times and safety.

The integration of Skydio’s autonomous drones into AXON’s public safety product suite, including real-time operations and evidence management, and Dedrone’s airspace surveillance technology enables more effective and scalable use of drones in emergency situations.

In May, the company announced Acquisition of Dedronea global leader in airspace security. This acquisition aligns with AXON’s mission to “Protect Life” by enhancing the company’s ability to counter drone threats and advance the use of drones as first responders (DFR).

Dedrone’s innovative technologies will support the company’s efforts to protect communities and improve critical incident response. The transaction, subject to customary closing conditions, is expected to close in the second half of 2024.

Mixed financial development

For the first quarter ended March 31, 2024, AXON’s net revenue increased 34.3% year-over-year to $460.74 million. Gross margin for the period was $260.05 million, up 27.4% year-over-year, while Adjusted EBITDA increased 67.3% year-over-year to $108.89 million. In addition, non-GAAP net income increased 37.4% and 30.7%, respectively, to $88.85 million, or $1.15 per share, compared to the same quarter last year.

However, operating income declined slightly year-over-year to $16.28 million. The company’s net cash flow from operations for the quarter was $15.94 million, while adjusted free cash flow was negative $26.11 million. Additionally, AXON’s cash and cash equivalents decreased to $403.87 million as of March 31, 2024, compared to $598.55 million as of December 31, 2023.

Excessive valuation

In terms of forward non-GAAP P/E, AXON is trading at 68.31, 276.8% higher than the industry average of 18.13. Likewise, the stock’s forward non-GAAP PEG multiple of 4.52 is 172.7% higher than the industry average of 1.66.

AXON’s forward EV/sales and price/sales multiples of 11.22 and 11.39 are well above the respective industry averages of 1.75 and 1.43. In addition, its forward price/book ratio of 11.05x compares to the industry average of 2.62x.

High profitability

AXON’s trailing 12-month gross profit margin of 60.16% is 93.2% higher than the industry average of 31.14%. Also, its trailing 12-month FCF margin of 11.85% is 86.9% higher than the industry average of 6.34%. However, its trailing 12-month net profit margin of 15.60% is 157.7% higher than the industry average of 6.06%.

Furthermore, the stock’s ROCE and ROTA for the last 12 months are 16.29% and 7.25%, respectively, 31.2% and 48.1% higher than the industry average of 12.41% and 4.90%, respectively.

POWR ratings reflect uncertainty

AXON’s mixed fundamentals are reflected in POWR Reviews. The stock has an overall rating of C, which equates to Neutral in our proprietary rating system. POWR Ratings are calculated by taking into account 118 different factors, with each factor being given optimal weighting.

Our proprietary rating system evaluates each stock based on eight different categories. AXON has a B grade for quality, consistent with its above-industry profitability.

However, with a 24-month beta of 1.61, the stock has received a grade of C for stability. Moreover, AXON’s grade of D for value is justified by its stretched valuation.

AXON ranks 48th out of 86 stocks in the Industrial Equipment Industry. Click here to access AXON’s growth, momentum and sentiment ratings.

Bottom line

While AXON’s latest quarterly report showed impressive revenue growth and improved profitability, concerns about stretched valuations, operating losses, and an expected decline in earnings per share in the upcoming quarterly report raise concerns about the near-term trajectory. Given these factors, it might be wise for investors to wait for a better time to enter the stock.

How does Axon Enterprise, Inc. (AXON) compare to the competition?

AXON has an overall rating of C, which corresponds to a neutral rating. You can find these A-rated (Strong Buy) stocks within the Industrial Equipment Industry: LSI Industries Inc. (LYTS), NL Industries, Inc. (Germany – Police) and Konica Minolta, Inc. (KNCAY). To explore more A- and B-rated industrial equipment stocks, Click here.

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AXON shares were trading at $302.14 per share on Monday afternoon, up $3.76 (+1.26%). Year-to-date, AXON has gained 16.96%, while the benchmark S&P 500 index has risen 17.56% over the same period.

About the author: Shweta Kumari

Shweta’s keen interest in financial research and quantitative analysis led her to a career as an investment analyst. She uses her knowledge to help retail investors make informed investment decisions. More…

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