Axon Enterprise Stock Forecast: After nearly six months of headlines dominated by the coronavirus pandemic, a new item has taken over the stage – police reform.
George Floyd’s murder at the hands of Minneapolis police ignited protests throughout the country and around the world. The United States hasn’t seen such looting, rioting, and overall violence on this scale in nearly 50 years.
This had led to the loudest ever wave of voices calling for police accountability. Body cameras are one of the most important tools departments can implement.
For investors, though, this has led to a sudden attraction to law enforcement stocks as new reform policies and procedural improvements mark a potential adoption of new enforcement technologies.
A stock that’s already showing growing promise in this vein is Axon Enterprise [NASDAQ: AAXN].
What Does Axon Enterprise Do?
Axon Enterprise, previously known as Taser International (they rebranded in 2017), develops, manufactures, and sells conducted electric weapons, or CEWs, to law enforcement agencies, military agencies, prisons, private security firms, and even individuals for personal security.
Axon also develops and provides body cameras for police officers.
Axon Enterprise [NASDAQ: AAXN] currently works via two segments:
- Taser Weapons – CEWs and accessories, related items, services
- Axon – devices and wearables, such as body cams and associated apps, which are also provided through their cloud products
Axon also provides departments with the hardware and training necessary to use their various devices, as well as data storage via their cloud platform.
When Axon rebranded a few years ago, it offered its products free to law enforcement agencies for a full year.
At the end of that year, it offered departments the option of purchasing the devices or returning them. Departments that kept products, such as body cams, were responsible for the costs of the items themselves, as well as a monthly subscription fee for their cloud storage.
The CEO of Axon stated that not only would these devices assist officers in their positions, but that their use could also drive much-needed social changes.
Not to mention, body cams provide an impartial record of an officer’s daily duties – thereby reducing paperwork exponentially.
Is Axon Enterprise Stock A Buy?
Does this mean that America’s protests are directly causing the boost to Axon’s shares? Probably not.
Most of Axon’s products aren’t necessarily something the average person can simply go out and purchase – even in times like these.
It’s more likely that, due to these protests, Axon’s share price is getting a lift by the demand for reforms and accountability of officers, especially those abusing their authority.
In other words, what’s driving Axon’s shares is more likely to be investors who foresee more departments and precincts signing up for Axon’s body cams and cloud management services.
Add to this the overwhelming call for reduced police brutality, and non-lethal weapons seem the clear alternative.
Risks of Investing in Axon Enterprise
As with any investment, there’s some risk involved when investing in Axon Enterprise. Currently, a better than average return is expected from Axon shares over the next few months.
That said, while current events are causing Axon to soar – that could be a double-edged sword. For instance, rather than arming police officers with more updated equipment, such as Axon’s body cams, many people are outright calling for the disbanding of police stations around the nation.
That might seem farfetched, but if 2020 is any indication, it might not be that out of the question. If cities were to even defund their police officers, most precincts wouldn’t have enough to pay employees, much less to invest in updated equipment.
It’s possible that Axon is overvalued due to this. If you’re a value investor, this could be a bad investment choice. The fickle nature of the market suggests that, while Axon’s financial health and its prospects for growth seem to be on a steady, upward trend, it could also vastly underperform in relation to the market.
Certain popular trends, such as the call for defunding police departments, might not come to fruition. Monitoring market trends is always important, but current events – while certainly on fire at the moment – may not depict a trustworthy insight into how these events will evolve.
Will Axon Enterprise Competitors Beat It?
Axon Enterprise, Inc. doesn’t necessarily have any direct competitors. Axon purchased its closest competitor in 2018.
The coronavirus has caused a recession, which in turn impacts the market overall. But this recession isn’t the only black cloud over Axon. The Federal Trade Commission (FTC) challenged the company’s acquisition of its competitor, VieVu, on the grounds that the acquisition violated antitrust laws. VieVu won a coveted contract to supply the NYPD with devices similar to Axon’s in 2016.
Axon’s claims are that VieVu was failing and had no other companies interested in acquisition. In other words, Axon’s stance is that the restrictions of antitrust laws don’t apply in this instance.
The FTC’s answer was for Axon to help subsidize the costs of creating its own rival in the marketplace, especially when it comes to body cams. Currently, the former parent company of VieVu has agreed to settle concerning the FTC’s allegations.
Axon Enterprise Stock Forecast: The Bottom Line
In early May 2020, Axon blew past forecasters’ predictions. All uncertainty aside, it appears Axon has convinced the market that it provides not only a recession-proof business model, but with perfect execution and huge growth opportunities.
One of the figures contributing to this is that of Axon’s revenue retention – over 120% – in regards to its cloud software that allows departments to monitor and manage footage and incidents in real-time.
The bottom line is Axon is currently a buy, but with risks that avid traders are well aware of before taking the plunge.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.