Axon Enterprise (NASDAQ:AXON) is at the forefront of law enforcement's move to improve video evidence collection and use of less lethal weapons like tasers. Both products can help make law enforcement and communities safer, and law enforcement more effective. 

As a company, Axon has been investing most of its potential profits in building out an ever-expanding line of products and functions for its customers. That will continue, and if the company can gain enough market share, it could be a great buy for investors. 

Axon's headquarters building.

Image source: Axon Enterprise.

What we know

We know that Axon's taser and body camera products are gaining traction in the market. In the first three quarters of 2017, taser revenue was up 18% to $170.1 million, and body camera revenue was up 89% to $79 million. That's a growth trend that's been going on for years. 

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AAXN Revenue (TTM) data by YCharts

The challenge is that growth hasn't translated to profitability. That's because Axon has been growing operating expenses in R&D and sales more quickly than sales themselves. The idea is to invest in new products to capture market share, which will eventually lead to profitability long-term. 

One indication that strategy is working is future contracted revenue. Axon has started selling tasers on licenses -- which ensures law enforcement gets regular product upgrades -- and normally sells body cameras with long-term contracts for cloud services on The company may pay for sales upfront, but the long-term benefit will be felt for years. And at the end of last quarter, there was $494.2 million in future revenue already contracted. That's a good sign that the costs being incurred now will pay off. 

Axon's growth has just begun

What excites me about Axon is that it's defining an entirely new market -- and if its products get wide adoption, it should have an extremely profitable business with recurring revenue for the foreseeable future. First, let's take a look at the opportunity for Axon's existing products

Based on the latest data from the U.S. Department of Justice, there are about 1.1 million law enforcement officers in the U.S. I'd suggest that it's reasonable to assume that there are at least 10 times as many global law enforcement officers abroad as there are in the U.S., meaning that there are 11 million potential customers for Axon's products.  

As of the end of the third quarter, Axon had sold 187,400 licenses since the evidence-tracking website was launched, just scratching the surface of its potential. This is the segment I think investors should focus on, because services around body cameras generated a 77% gross margin in the first three quarters of last year and, as the user base grows, this will drive profitability. 

New products could drive both adoption and revenue per customer for Axon. The three I'm most excited about in 2018 are Sidearm, a holster that turns a body camera on when an officer's gun is pulled, a new records management system, and the Axon Fleet in-car camera. Records management will allow officers to conduct interviews on camera and keep body camera video of an incident in one place. The idea will be to reduce paperwork, improve accuracy, and increase the amount of time an officer can be in the field. 

These products could make the Axon ecosystem an integral part of law enforcement's work and drive profitability for the company long-term. 

Is Axon Enterprise a buy? 

Axon's net income of $13.6 million over the past year doesn't instill much confidence that the stock is a value, but the investment the company is making in growth looks like it's paying off. Revenue has nearly tripled in the past five years, and new products for 2018 should keep the growth coming. 

It's growth and very strong margins in the body camera services segment that give me confidence Axon Enterprise is a buy long-term. I'm also confident enough to keep my outperform call on MyCAPS page, betting the stock will beat the market long-term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.