Axon Enterprise Surges 39.9% in 6 Months: Should You Buy Now or Wait?

Axon Enterprise, Inc.’s AXON shares have surged 39.9% in the past six months, outpacing the industry and the S&P 500, which have returned 8.9% and 0.6%, respectively. The company has also outshone the Aerospace sector, which declined 0.9%, and its peers like Kratos Defense & Security Solutions, Inc. KTOS and Teledyne Technologies Incorporated TDY, which have gained 34.8% and 16.3%, respectively, over the same time frame.AXON Stock’s 6-Month Price PerformanceImage Source: Zacks Investment ResearchClosing at $559.06 yesterday, the stock is trading below its 52-week high of $715.99 but significantly higher than its 52-week low of $273.52. The stock is trading below its 50-day moving average but way above its 200-day moving average.AXON Shares’ 50-Day and 200-Day SMAImage Source: Zacks Investment ResearchFactors Driving the StockThe strongest driver of Axon Enterprise’s business at the moment is solid momentum in its Software & Sensors segment. The addition of new users and associated devices to the Axon network has been supporting the segment’s growth of late. Robust demand for cloud-connected TASER devices and increased adoption of software applications are driving Axon Evidence and Cloud Services’ growth within the segment. Axon Evidence and Cloud Services’ revenues climbed 44.5% to $238 million in the fourth quarter of 2024.Axon Enterprise’s TASER segment is witnessing solid demand for TASER devices and growing adoption of its virtual reality training solutions. The company continues to witness growing popularity for its next-generation TASER 10 devices, whose shipment began in 2023. Also, growth in cartridge revenues, driven by higher adoption of the TASER products, has been driving the segment’s performance. The segment’s revenues jumped 37.1% year over year to $221.2 million in the fourth quarter. In 2024, AXON shipped more than 200,000 TASER devices, 300,000 body cameras and 9 million cartridges.The company remains focused on investing in newer areas within the software business, like AI products, real-time operations, drones and robotics, which bodes well for growth. Given strength across its business, Axon Enterprise provided bullish financial guidance. For 2025, the company expects revenues to be in the band of $2.55-$2.65 billion, indicating growth of approximately 25% year over year. Adjusted EBITDA is expected to be in the range of $640-$670 million, implying an adjusted EBITDA margin of about 25%.The company’s strategic partnership with other companies enables it to expand its product offerings and customer base. In June 2024, Axon Enterprise entered into a partnership with Skydio (a leading U.S. drone manufacturer) to introduce a comprehensive line of drones in public safety that includes a scalable Drone as First Responder (DFR) solution. The combined offering will support the company’s DFR programs across its customer base and strengthen its market position in this category.AXON’s Near-Term ConcernsThe escalating costs and expenses are a concern for Axon Enterprise’s bottom line. In 2024, its cost of sales soared 39% year over year on higher wages and stock-based compensation expenses. The metric, as a percentage of sales, was 40.4%, up 160 basis points. Also, the company’s selling, general and administrative expenses increased 49.8% year over year. The increase in operating expenses has been adversely impacting the company’s margins. For instance, in 2024, Axon Enterprise’s gross margin declined 160 basis points year over year.Stretched ValuationAXON’s lofty valuation remains a concern. The stock is trading at a forward 12-month price-to-earnings (P/E) ratio of 82.96X, much higher than the industry average of 38.03X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours. In comparison with the AXON’s valuation, Kratos Defense & Security and Teledyne Technologies are trading at 58.52X and 23.14X.Stiff CompetitionAxon Enterprise also operates in the highly competitive aerospace and defense markets, comprising well-recognised providers of highly engineered products. As one of its peers, Kratos Defense serves as the primary unmanned aerial target drone system provider for the U.S. Air Force, Navy, Army and numerous allied foreign defense agencies. Teledyne Technologies, another peer, serves the markets of aerospace and defense, factory automation, air and water quality environmental monitoring, electronics design and development and oceanographic research.AXON’s Earnings Estimate RevisionThe company’s earnings estimates for 2025 have decreased 1.8% to $6.38 per share over the past 30 days. Earnings estimates for 2026 have inched down 0.3% to $7.91 per share. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Image Source: Zacks Investment ResearchFinal Thoughts on AXONStrong momentum across the Software & Sensors and TASER segments, along with its investments in AI space, drones and robotics, positions AXON favorably for impressive growth in the long run. However, a few challenges, such as escalating operating expenses, premium valuation and tepid earnings estimates, are limiting this Zacks Rank #3 (Hold) company’s near-term prospects.While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Only $1 to See All Zacks' Buys and SellsWe're not kidding.Several years ago, we shocked our members by offering them 30-day access to all our picks for the total sum of only $1. 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