Has Axon Enterprise (AXON) Pulled Back Enough After Recent Product Rollouts And Contract Wins

• If you are wondering whether Axon Enterprise at around US$424.69 still offers value or has run ahead of itself, you are not alone.
• The stock has recently seen a 7% decline over the last week, a 21.7% decline over the last month and a 24.6% decline year to date, even though the 1 year return sits at 21.5% and the 3 year and 5 year returns are 90.4% and 191.7% respectively.
• Recent headlines around Axon have focused on product rollouts, contract wins with law enforcement agencies and ongoing debates about public safety technology. All of these factors influence how investors view its long term prospects. These themes help explain why the stock has gone through periods of enthusiasm followed by pullbacks as expectations are constantly reassessed.
• Simply Wall St currently gives Axon Enterprise a valuation score of 3 out of 6. The rest of this article will walk through what that means across different valuation approaches and will also hint at a more complete way to think about value at the end.

Find out why Axon Enterprise's -21.5% return over the last year is lagging behind its peers.

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

A Discounted Cash Flow, or DCF, model takes projections of a company’s future cash flows and discounts them back to today. It aims to estimate what the entire business could be worth right now.

For Axon Enterprise, the model used here is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $92.5 million. Analyst inputs and Simply Wall St extrapolations project free cash flow rising to $966.8 million by 2028, with a full set of ten year projections extending out to 2035. All figures are expressed in dollars and then discounted back to today.

Adding these discounted cash flows together gives an estimated intrinsic value of about $380.93 per share. Compared to the current share price of around $424.69, the DCF suggests the stock is roughly 11.5% overvalued based on these assumptions and cash flow projections.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Axon Enterprise may be overvalued by 11.5%. Discover 58 high quality 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 companies that are already generating meaningful revenue, the P/S ratio is a useful way to gauge how much investors are paying for each dollar of sales, especially when earnings can be influenced by investment in growth or accounting items.

Higher growth expectations and lower perceived risk usually justify a higher P/S multiple, while slower growth or higher risk tend to support a lower, more conservative range that the market might see as normal.

Axon Enterprise currently trades on a P/S of 12.26x. That sits above the Aerospace & Defense industry average P/S of 4.64x, but below the peer group average of 21.56x. Simply Wall St’s Fair Ratio for Axon is 16.72x. This is the P/S level suggested for this company given its earnings growth profile, industry, profit margins, market cap and risk factors.

The Fair Ratio is more tailored than a simple peer or industry comparison because it adjusts for Axon’s specific growth outlook, profitability, sector and size, rather than assuming all companies with similar business labels deserve the same multiple.

Comparing the current P/S of 12.26x with the Fair Ratio of 16.72x indicates that, on this metric, the shares screen as undervalued.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Axon Enterprise Narrative

Earlier it was mentioned that there is an even better way to understand valuation. On Simply Wall St's Community page you can use Narratives, where you turn your view of Axon Enterprise into a simple story that links its business, a financial forecast for revenue, earnings and margins, and a Fair Value that you can compare with the current share price to decide whether the stock looks expensive or cheap. All of this then updates automatically when new news or earnings arrive. One investor might see Axon as a hardware name and anchor on a Fair Value near US$521.24, while another might focus on its public safety software platform and set a Fair Value closer to US$606.83 or even US$925.00.

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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