Shares of Axon Enterprise (AXON 1.25%) were heading lower today in a sell-off that picked up as the session went on.
The pullback seemed to be a response to the company's announcement yesterday that it was acquiring Prepared, an artificial intelligence (AI)-powered 911 communications company.
As of 2:58 p.m. ET, the stock was down 8.8%, even as it received a bullish analyst note from Piper Sandler last night.
Image source: Axon Enterprise.
What's happening with Axon?
The sell-off is surprising, but it's not entirely unusual for an expensive stock to fall on news of an acquisition, as investors may be wary of the company overspending, especially with markets at all-time highs.
Axon said yesterday that it would acquire Prepared, an AI-based communications platform that converts 911 calls into actionable intelligence, leading to a faster response.
In the press release announcing the deal, Axon did not say how much it was paying or how it would pay for Prepared, though The Information reported a price tag of around $800 million-$900 million.
The acquisition fits in well with Axon's overall business and mission, and the strategic rationale makes sense. It can fold Prepared into its software portfolio and sell it alongside its other products in a complementary way.
However, Axon's profits have been falling this year as it invests in new AI technology and continues to spend heavily on share-based compensation, which makes up roughly 20% of revenue.
Despite the long-term logic for the Prepared deal, short-term traders may be taking the opportunity to sell the high-priced stock.
Some good news for Axon
Last night, Piper Sandler initiated coverage of the stock with an overweight rating and a price target of $893, noting its history of product innovation and large total addressable market.
That assessment looks generally correct, despite the sell-off in the stock. Long-term investors should look past the pullback, as it looks more like the volatility that often comes with an expensive stock.
The acquisition should pay off over the long run.
