What happened

Shares of Axon Enterprise (NASDAQ:AXON), the maker of Taser stunguns and also Axon police body cameras, saw its stock devastated in Thursday's sell-off. By the time trading was done, Axon shares ended down 12.8%.

And no, there was no news today to explain why Axon stock, in particular, should have suffered this fate. To find out why Axon sold off, you need to flip the calendar back a few pages.

Glowing red stock chart arrow trending down.

Image source: Getty Images.

So what

The past three weeks have seen a remarkable surge in investor interest in Axon Enterprise stock, which has soared 39% in price, culminating in one last, 3% gasp after investment bank JPMorgan raised its target price on the stock to $120 yesterday.  

Why? Ever since the George Floyd video first surfaced on May 25, and demonstrations (and riots) began breaking out in protest of perceived abuses by the police, investors have seen Axon stock as the answer to both situations. For those most concerned about police misbehavior, Axon body cameras seemed a logical solution, so they bought the stock in anticipation of more towns and cities requiring their police officers to wear body cameras. At the same time, investors more concerned with crowd control presumably saw Axon's Tasers as a logical tool for that purpose, so they bought the stock, too!

Now what

Both lines of thinking, by the way, seem logical to me. They hold just as true today as they did yesterday, and for investors bullish on Axon stock, they could still prove correct...with caveats.

Whatever the company's merits, the problem with buying a stock as hot as Axon is that there comes a point when the stock's price has been driven up so high that the chances for further gains are slim. Axon stock, which has been unprofitable over the past 12 months and which was trading for an astonishing 258 times next year's earnings at its closing price Wednesday, arguably had reached that limit. It was, quite simply, overpriced and liable to fall at the slightest catalyst for selling.

Accordingly, when investors got spooked by the latest coronavirus news and began selling everything today, Axon stock got caught up in the whirlwind, and its stock fell alongside -- indeed, more than -- every other stock.

Now, will Axon stock go right back up again tomorrow? Maybe, maybe not. All I know for certain is that, at a valuation that is still 225 times the profit that analysts (polled by S&P Global Market Intelligence) think the company will earn in 2021, Axon's stock still looks too expensive to me.

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.