When it comes to the stock performance of long-term investments, there aren't many stocks that can hold a candle to Amazon. Investors who bought shares in the e-commerce giant 10 years ago have gotten quite a windfall, reaping gains of more than 667% (as of Thursday's market close). This isn't surprising given its market dominance and consistent execution.
Investors might be surprised to learn that a particularly boring company, Axon Enterprise (AXON 0.65%), absolutely crushed Amazon's results over the past decade, generating gains of 1,530%. In fact, it's probably fair to say that many investors have never even heard of this company, though they're likely familiar with its flagship product.
Let's take a look at what Axon does, and why investors should give this compelling growth story a serious look.
Image source: Axon Industries.
Taser and more
Axon Enterprises is best known for its flagship Taser stun gun used by law enforcement, which still represents a large part of the company's business. In the third quarter, the Taser segment generated revenue that grew 12% year over year to $162.6 million, representing 39% of Axon's revenue. While Taser forms the foundation of Axon's business, the company has evolved over the years.
The company is also the market leader in body cameras worn by law enforcement officers, in-car cameras, and sensors that make up a vital part of its offerings. Revenue from the segment grew 45% year over year to $103 million in the third quarter, accounting for 25% of the company's revenue.
The largest opportunity, however, is Axon's cloud services, which offer a suite of digital evidence management, productivity, and real-time operations capabilities. This is unquestionably the company's fastest-growing segment, up 55% year over year to $148 million, representing 36% of its sales and within striking distance of becoming Axon's biggest revenue generator.
Perhaps as importantly, a growing portion of the revenue is recurring as more customers adopt Axon's subscription-based software-as-a-service (SaaS) offerings, laying a solid foundation for future growth.
Axon is a boring financial powerhouse
Axon's consistent financial results underpinned the stock's relentless climb higher. In the third quarter, the company generated total revenue that grew 33% year over year to $414 million, driven by gains across its product segments, as outlined above.
Lest there be any question, the recent results aren't an outlier, but part of a pattern of consistent and reliable, though somewhat boring, growth. In fact, over the past 10 years, Axon's revenue increased by 933%, a compound annual growth rate (CAGR) of 28%. At the same time, net income has increased by more than 1,000%, for a CAGR just short of 28%. As a result, the stock price has risen 1,500%, generating gains for investors of roughly 32% annually.
Furthermore, management expects the company's growth streak to continue. Axon just increased its guidance and is now forecasting full-year revenue of $1.55 billion, representing growth of 30%. This is up from the company's previous outlook, which called for growth of between 27% and 29%. Management is also guiding for a commensurate increase in operating profits, calling for a full-year adjusted EBITDA margin of 20.8%, up from its previous estimate of 20%.
Not bad for a boring company.
This could be just the beginning for Axon
As impressive as the past decade has been, Axon still has a vast, largely untapped opportunity. The company has achieved a market penetration of 35% in the U.S. for the Taser and just 14% for its body camera. There's also an ongoing international expansion that's just getting started. In its commonwealth countries, which include the United Kingdom, Canada, Australia, and New Zealand, penetration for the Taser and body cams has reached 22% and 30%, respectively, while in Europe it's 3% and 1%, respectively.
This helps to illustrate the significant market opportunity ahead. In all, management estimates its total addressable market, which includes Taser, body cameras, digital evidence management, and real-time operations and productivity software, at roughly $50 billion. When viewed in the context of its 2022 revenue of $1.2 billion, this shows the long runway ahead.
Finally, there's the matter of valuation. Axon is currently trading for 65 times forward earnings, higher than the forward price-to-earnings ratio of 55 for Amazon. However, given the fact that Axon stock has more than doubled the gains of Amazon, it's obviously deserving of a premium.
Now's the time to time to buy Axon stock, before the next decade of Amazon-crushing gains.
