Axon Enterprise after price jump: 3 reasons why the stock remains a buy

The proportion of AxonEnterprise (NASDAQ:AMZN) has made a solid rally during the week and after the earnings announcement. Equity certificates in US trading rose by up to 12.9 per cent. A solid overall market for growth stocks may have been somewhat supportive, but investors were impressed by the operational update.

Nevertheless, the Axon Enterprise is still a solid option even after the price increase. Today, let’s look at three reasons why the American security company absolutely remains relevant. Maybe even this rating.

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Axon Enterprise: get cheap!

A primary reason Axon Enterprise remains a top long-term pick has to do with fundamental valuation. Also, I’m inclined to say that a market cap of around $8 billion is relatively small. The price-to-sales ratio should be below 7.5 for the current financial year 2022 and after the forecast has been increased again. Of course, it’s not cheap. But not too much either.

Axon Enterprise also becomes profitable. In the most recent quarter, management reported net earnings of $0.44 per share. Extrapolated, the price-to-earnings ratio should be around 72, which isn’t too cheap. But management is just starting to scale the bottom line. That is the crucial point.

Ecosystem: Hardware, Software, Cloud & Authorities

For me, Axon Enterprise is and will be a long-term opportunity because the management is developing a strong ecosystem. It is about nothing less than taking the security authorities and private security needs into account as best as possible. Hardware like tasers and body cams, software like cloud solutions and sensor products and other gadgets play a role. Whether control center technology, drones or even linking authorities through data management software. It is truly remarkable how wide the range of services has become.

It is also relevant which margins the American company delivers. In the cloud area the operating margin is over 70%, even in the Taser area we have values ​​of 64%. These are strong values ​​that indicate possible competitive advantages. In any case, the American company has the opportunity to continue to grow very profitably. And that in a market that can still grow significantly.

Axon Enterprise: The tip of the iceberg visible

Last but not least, at Axon Enterprise we only really see the top of the possibilities. Even the 31% revenue growth to $286 million, which is very solid, is really just a teaser.

By the end of the fall quarter of 2021, management put the total market at $52 billion. Extrapolated over a year, this means that Axon Enterprise has not even reached 2% of its revenue potential. If the investment thesis continues to succeed, and the management secures more and more market shares in its own market, there is really great potential.

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Vincent owns shares in Axon Enterprise. The Motley Fool owns shares of and recommends Axon Enterprise.

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