What happened
Shares of law enforcement technology company Axon Enterprise (AXON +0.08%) were up a smooth 44.3% through the first half of 2021, according to data provided by S&P Global Market Intelligence. The inventor of the TASER continues to diversify its business by moving into software, selling its products internationally, and moving outside of selling to just police departments.
So what
Axon released its Q1 results back in May, which was likely a catalyst for the stock's strong performance over the past two months. Revenue was up 33% during the period, beating management's internal estimates, and a lot of other numbers looked good as well. New product bookings were up 130% year over year, showing that Axon's diversification from solely selling TASER devices is working. Net revenue retention was 119% in the quarter, which shows the strong revenue growth Axon is getting from existing customers. Since Axon sometimes sells contracts lasting five or even 10 years, it has low churn for its hardware and software bundles, making its revenue highly predictable.
Image source: Getty Images.
What's more, Axon had plenty of announcements that indicate growth should continue in the future. On June 29, Axon announced that Piedmont Healthcare would be equipping its security officers with TASERs and body cameras and is using the digital management system Axon Evidence at hospitals in Georgia. On June 10 the Sao Paulo State Military Police in Brazil started equipping 2,500 officers with Axon hardware and has started using Axon's software products. This police force is the largest in Brazil, with more than 90,000 officers in total, showing the strides Axon is making as it expands outside of its home market, the United States.
Now what
With the stock up so much in 2021, Axon now trades at a premium valuation. At last glance, it had a price-to-sales ratio (P/S) of 15.5 on a market cap of $11.5 billion. Axon is unprofitable on a GAAP basis but did generate $45.8 million in adjusted EBITDA in Q1, which excludes stock-based compensation expenses. Management also updated its full-year 2021 guidance range to between $780 million and $820 million, up from its original range of $740 million to $780 million.
Since the stock is at such a high P/S, anyone thinking of investing in Axon Enterprise for the long term will need to expect continued strong sales growth and increased profitability from this company.
