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Why Axon Enterprise Stock Jumped 27% Last Month

By Jeremy Bowman - Dec 8, 2020 at 4:10PM

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A strong earnings report and changes in the political climate lifted the law-enforcement tech company's shares.

What happened

Shares of Axon Enterprise ( AXON -6.10% ) moved 27% higher in November, according to data from S&P Global Market Intelligence, propelled in part by a strong third-quarter report. The maker of electroshock weapons and body cameras also took a post-election bounce, perhaps because investors expect President-elect Joe Biden to pursue criminal justice reform, which could favor the wider use of tools like body cameras to promote police accountability.

As you can see from the chart below, the bulk of the gains came in the first week of the month as the market responded to the election and the earnings report.

AAXN Chart

AAXN data by YCharts

So what

Like much of the market, Axon shares marched higher in the first week of November in response to the election results as investors reacted favorably to what's likely to be a divided government in Washington.

An officer writing a ticket while wearing an Axon body camera.

Image source: Axon Enterprise.

Then, the stock surged 13% on Nov. 6 in response to the company's  Q3 report. Revenue rose 27% to $166.4 million and bookings grew by 56%, a promising sign for future revenue growth. Notably, federal government bookings jumped by 400%, showing Axon is successfully tapping that major market. The week prior to the earnings report, the Justice Department said it would permit officers on federal task forces to wear body cameras.

In another bullish sign, annual recurring revenue, which comes from the company's subscription cloud-based products like Axon Evidence and Axon Records, rose 44% to $204 million. On the bottom line, adjusted earnings per share rose from $0.28 to $0.40, which was well ahead of estimates of $0.20.

International revenue growth was also strong, rising 43% to $23 million.

Now what

Management guided for revenue in the $175 million to $185 million range for the current quarter, which at the midpoint would equate to just 5% growth from the previous year, and strong adjusted EBITDA in the range of $30 million to $35 million. 

While the expected revenue growth may not blow investors away, Axon's top-line growth tends to be erratic as it is influenced by new product launches and accounting rules for cloud subscriptions. However, the long-term thesis still looks solid. This is a company with a unique set of products and services like its electrical weapons, body cameras, and cloud software that helps law enforcement agencies better track and record data. Expect the stock to continue to be a winner.

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.

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