Assessing Axon Enterprise After a 317.2% Five Year Surge and Recent Pullback

• Wondering if Axon Enterprise is still worth buying after its massive run over the last few years, or if the easy money has already been made? You are not alone.
• The stock has cooled off recently, with shares down 3.2% over the last week and about 7.8% year to date, but that is after a gain of 214.8% over three years and 317.2% over five years.
• Investors have been reacting to Axon's expanding footprint in public safety technology, from its TASER devices to body cameras and cloud based evidence platforms, as law enforcement agencies continue modernising their equipment and workflows. At the same time, broader market swings in high growth tech names have added some extra volatility to the share price.
• On our framework, Axon only scores a 2/6 valuation check score. This suggests the market may be pricing in a lot of optimism already, so we will walk through what traditional valuation methods say about that optimism, and then close with a more nuanced way to think about Axon's value.

Axon Enterprise scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Axon Enterprise Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model projects the cash Axon Enterprise could generate in the future and discounts those cash flows back to today to estimate what the business is worth in $ right now.

Axon currently generates about $147.7 million in free cash flow, and analysts expect this to rise sharply over the coming years, with projections reaching around $841.9 million by 2027. Beyond the analyst horizon, Simply Wall St extrapolates further growth, with free cash flow potentially approaching roughly $2.0 billion by 2035, reflecting robust expectations for Axon's ability to scale its platform and margins.

When all these future cash flows are discounted back using a 2 Stage Free Cash Flow to Equity model, the intrinsic value is estimated at about $401 per share. Compared with the current share price, this implies the stock is roughly 37.0% overvalued, suggesting that a lot of future success is already priced in.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Axon Enterprise may be overvalued by 37.0%. Discover 911 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Axon Enterprise.

Approach 2: Axon Enterprise Price vs Sales

For a fast growing, profitable platform business like Axon, the price to sales multiple is a useful way to gauge valuation because it looks at how much investors are paying for each dollar of revenue, which tends to be more stable than near term earnings for companies still investing heavily in growth.

In general, higher growth and lower risk justify a higher price to sales ratio, while slower or more uncertain growth should command a lower one. Axon currently trades at about 17.0x sales, which is far richer than the Aerospace and Defense industry average of roughly 3.0x, though a bit below the peer group average of around 18.5x. This indicates the market already prices Axon as a premium growth name.

Simply Wall St also calculates a Fair Ratio of 14.4x, its proprietary estimate of the price to sales multiple that makes sense for Axon given its growth outlook, profitability, risk profile, industry and market cap. This is more informative than simple peer or industry comparisons because it adjusts for Axon’s specific strengths and risks. With the actual multiple sitting above this Fair Ratio, the shares look somewhat expensive on a sales basis.

Result: OVERVALUED

PS ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1463 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Axon Enterprise Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to connect your view of Axon Enterprise’s future with clear numbers for revenue, earnings, margins and fair value.

A Narrative is your story about a company, captured in a structured forecast that links what you believe about Axon’s products, growth drivers and risks to a set of financial assumptions and, ultimately, a fair value estimate that you can compare to today’s share price.

On Simply Wall St, Narratives live in the Community page and are used by millions of investors as an easy, accessible tool to help inform decisions by seeing whether their Fair Value is above or below the current Price and how that changes over time.

Because Narratives are updated dynamically as new earnings, news and guidance arrive, you can watch your thesis evolve, and you will often see very different but reasonable Axon stories side by side, such as one Narrative that assumes high revenue growth, robust margins and a fair value close to the upper analyst targets around $1,000, and another that bakes in slower growth, thinner margins and a fair value nearer the low to mid $600s.

Do you think there's more to the story for Axon Enterprise? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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