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Why Axon Stock Popped Today

By Rich Smith – Dec 14, 2021 at 12:08PM

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JMP Securities pumps up the volume on Axon.

What happened

Shares of bodycam and Taser maker Axon Enterprise (AXON 3.28%) jumped out of the gate Tuesday morning and are up 4.9% as of 11 a.m. ET.

You can thank JMP Securities for that.

Person in suit is supporting a rising stock arrow.

Image source: Getty Images.

So what

This morning, JMP resumed coverage of Axon stock, rating the stock as outperform and assigning it a $195 price target that implies it could go up another 33.6% even after today's rally.

With Tasers and bodycams well entrenched in police departments already, you might think that the stock has run out of room to grow. But not so, says JMP.

To the contrary, in a note published this morning on The Fly, JMP is optimistic the company can expand distribution of Tasers even further, saying, "as well as leverage its leadership position and range of products to expand market share in adjacent public safety technology markets such as body worn cameras and cloud-based services that improve operational efficiency."

Now what

How much should you be willing to pay for a growth stock like Axon? With no profit last year -- and nothing earned through the first three quarters of 2021, either -- it's difficult to assign the company a valuation based on "earnings" right now. So instead, JMP posits placing a price-to-sales valuation on the stock, arguing that at eight times estimated sales for 2023, the stock is "attractively valued."  

Eight times sales doesn't sound like too much, does it? But here's the thing: If we're using 2023 estimates, most analysts surveyed see Axon earning only $1.13 per share, on a generally accepted accounting principles (GAAP) basis. Applying those earnings to today's stock price of $144 and change, that means JMP thinks Axon stock should sell for more than 127 times earnings that are two years away from now.

Personally, I think that valuation looks a little optimistic.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns and recommends Axon Enterprise. The Motley Fool has a disclosure policy.

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