The stock of Axon Enterprise Inc (AXON, Financial) has seen a daily gain of 2.34%, and a 3-month gain of 7.47%. With an Earnings Per Share (EPS) (EPS) of 1.34, the question arises: Is the stock fairly valued? This analysis will explore Axon Enterprise's valuation, financial health, and growth prospects to answer this question. We encourage readers to delve into the following analysis to make informed investment decisions.
Company Overview
Axon Enterprise Inc develops, manufactures, and sells conducted energy devices and cloud-based digital evidence management software. These products are designed for use by law enforcement, corrections, military forces, private security personnel, and private individuals for personal defense. The company operates in two segments: Taser and software & sensors. The Taser segment develops and sells Conducted Energy Devices (CEDs) used for protecting users and virtual reality training. The Software and Sensors segment manufactures fully integrated hardware and cloud-based software solutions such as body cameras, automated license plate reading, and digital evidence management systems. Axon delivers its products worldwide and generates most of its revenue from the United States.
As of August 10, 2023, Axon Enterprise (AXON, Financial) is trading at $205.14 per share, with a market cap of $15.30 billion. The company's estimated fair value, also known as the GF Value, stands at $215.69, indicating that the stock is fairly valued.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from our exclusive method. It is calculated based on three factors: historical trading multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
According to GuruFocus Value calculation, Axon Enterprise stock appears to be fairly valued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Axon Enterprise's current price and market cap, the stock seems to be trading at its fair value.
As the stock is fairly valued, the long-term return of Axon Enterprise's stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength could lead to a higher risk of permanent loss of capital. Therefore, it's essential to carefully review a company's financial strength before deciding to buy its stock. Looking at the cash-to-debt ratio and interest coverage can provide a good starting point for understanding a company's financial strength. Axon Enterprise has a cash-to-debt ratio of 1.54, which is better than 63.18% of companies in the Aerospace & Defense industry. GuruFocus ranks the overall financial strength of Axon Enterprise at 7 out of 10, indicating that the company's financial strength is fair.
Profitability and Growth
Investing in profitable companies carries less risk, especially if the company has demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Axon Enterprise has been profitable 8 years over the past 10 years. Over the past 12 months, the company had revenues of $1.40 billion and an Earnings Per Share (EPS) of $1.34. Its operating margin of 7.26% is better than 55.63% of companies in the Aerospace & Defense industry. Overall, GuruFocus ranks Axon Enterprise's profitability as fair.
Growth is probably one of the most important factors in the valuation of a company. If a company's business is growing, it usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. Axon Enterprise's 3-year average revenue growth rate is better than 87.4% of companies in the Aerospace & Defense industry. Its 3-year average EBITDA growth rate is 169.4%, ranking better than 99.56% of companies in the Aerospace & Defense industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). The Return on Invested Capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The Weighted Average Cost of Capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Axon Enterprise's ROIC was 5.15, while its WACC came in at 10.8.
Conclusion
In summary, the stock of Axon Enterprise (AXON, Financial) gives every indication of being fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 99.56% of companies in the Aerospace & Defense industry. To learn more about Axon Enterprise stock, you can check out its 30-Year Financials here.
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