Axon Enterprise Joins Nasdaq-100: A Look at Its Remarkable Growth and Future Prospects

The Nasdaq Composite serves as a key U.S. stock market index, tracking around 3,000 tech-focused stocks. Within it lies the Nasdaq-100, which follows about 100 of the largest non-financial firms on the exchange. To become part of the Nasdaq-100, a company must meet certain criteria:

• It must be listed solely on the Nasdaq exchange.
• It must exhibit high liquidity.
• It must have been listed on an eligible exchange for at least three full calendar months.
• A minimum of 10% of its outstanding shares must be available for trading.
• It must not have filed for bankruptcy protection.

Axon Enterprise (NASDAQ: AXON) recently became a part of the Nasdaq-100 on December 23, replacing biotech firm Moderna. Since its IPO in mid-2001, Axon’s stock has experienced an astounding gain of 110,600%.

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A Core Player in Law Enforcement Technology

Axon aims to “increase the safety of law enforcement officers, decrease suspect injuries, improve community relations, reduce litigation and police department medical and liability insurance costs, and potentially save lives.” Its iconic Taser stun gun is widely used by law enforcement agencies, solidifying its place in public safety. In the third quarter, the Taser segment alone grew by 36% year over year, generating $221.7 million, which is 41% of the company’s total revenues.

Aside from Tasers, Axon leads the market in body cameras and sensors, with revenue from this segment increasing by 29% year over year to $322.5 million, now accounting for 59% of overall sales.

Integrated into these offerings are Axon’s cloud services, which support digital evidence management, real-time operations, and productivity tools. The company provides the top cloud software suite for public safety, enhancing its range of products.

Management mentions a “flywheel effect” from its products. This system ensures that as more officers use Axon’s technology, more data is generated and fed back into improving its algorithms, leading to refined products that further meet customer needs.

In the latest quarter, Axon reported total revenues of $544 million—up 32% from the previous year—resulting in adjusted earnings per share of $1.45, a 38% increase. The company’s annual recurring revenue also grew by 36% to $885 million, with subscriptions making up 95% of total revenue.

Additionally, Axon points out that the average length of its contracts exceeds five years, contributing to a strong net revenue retention rate of 123%.

Expectations for continued growth are high. Management has raised the full-year revenue outlook to $2.07 billion, reflecting a growth increase from 29% to 32%.

Analysts Remain Optimistic About Axon

Street analysts are largely positive about Axon. Of the 15 analysts who provided ratings in December, all rated the stock a buy or strong buy. Some analysts think the stock has risen too quickly, particularly as its price exceeded the average target. However, Axon’s strong earnings have led to nine price target increases recently.

Baird analyst William Power is especially bullish, maintaining a buy rating and raising his price target to $800. This could imply a 27% upside compared to the stock’s closing price on Friday. His optimism follows a meeting with management, where he noted promising developments in Axon’s AI integration.

One concern is Axon’s high valuation, with current earnings priced at 162 times. Yet, when considering its growth trajectory through a forward price-to-earnings ratio, which results in a valuation of 0.95, Axon appears undervalued since any number below 1 indicates favorable investments.

Since its public debut in April 2001, Axon has significantly outperformed broader markets, achieving gains of 110,600%, far exceeding the Nasdaq-100’s return of 984%.

Considering its solid execution and the expansive market opportunities, Axon stands out as a compelling buy.

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*Stock Advisor returns as of December 23, 2024

Danny Vena has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool also recommends Moderna. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.