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This Growth Stock Is Just Getting Started

By Travis Hoium – Updated Aug 27, 2021 at 4:52PM

Key Points

  • Axon has been a great growth stock for a decade, but it's still in its early innings.
  • We're now seeing body cameras and cloud services hitting critical mass.
  • What's next: expanding the moat, and growing revenue per user as Axon adds more services to the platform.

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Axon continues to grow in the law-enforcement market, and as new products come out, it's widening its moat very quickly.

Law enforcement may not seem like the most logical growth business in the world, but Axon Enterprise (AXON 1.77%) has managed to become a high-growth stock servicing exactly that market. The company's Tasers are growing in popularity, but body cameras and other services are ultimately driving the company forward.

Over the last five years, Axon's share price is up a whopping 554%, and revenue is up 233%. But this company may just be getting started on its growth trajectory. And even near all-time highs, there are a lot of reasons to like Axon stock.

A police officer wearing an Axon body camera while speaking to someone not in uniform.

Image source: Axon.

The growth story hasn't lost steam

For more than a decade, Axon has been a growth stock. The company started with Tasers and slowly added body cameras and cloud video storage to the mix, but now it's a full law-enforcement data company.

AXON Revenue (TTM) Chart

AXON Revenue (TTM) data by YCharts.

In a recent presentation to investors, management said that Taser sales have grown at a compound annual rate of 16% over the last five years, while body cameras and other sensors have grown at a 40% rate and cloud services have grown at 57%. What's crazy is that the company's growth may just be getting started.

New products are expanding Axon's moat

As valuable as Tasers and body cameras are for Axon, they're the tip of the iceberg. Management thinks there's a total addressable market of $27 billion, and Tasers ($5 billion) and body cameras and digital evidence management ($11 billion) are less than 60% of that opportunity.

Axon Records is a dynamic records service that includes video, transcripts, and ID scanning in an effort to digitize and automate law enforcement records. Management puts its opportunity at $2 billion.

Dispatch provides another $2 billion opportunity to integrate the dispatch process into Axon's services. Virtual reality and augmented reality are yet another $2 billion potential market for Axon.

What each of these products has in common is that they tie into Axon's core systems for evidence capture and management. As the company adds more products that seamlessly integrate, it will be able to add more value and generate more revenue from each customer, increasing its competitive moat.

Axon's business has room to grow

There's no question that Axon's stock is expensive, at nearly 15 times sales, and that the company has no profit to show for all of its growth. But Axon could grow for a decade or more, and profitability should increase rapidly when the company decides to slow investment in sales and in research and development. And when that bottom-line growth comes, the stock could look cheap again.

As the clear industry leader in law enforcement, Axon is a great stock to own long-term, and I think it will continue to outperform the market long-term. This is a growth stock that's still in the early innings of its growth story.

Travis Hoium owns shares of Axon Enterprise. The Motley Fool owns shares of and recommends Axon Enterprise. The Motley Fool has a disclosure policy.

Stocks Mentioned

Axon Enterprise Stock Quote
Axon Enterprise
$188.83 (1.77%) $3.28

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