Very few companies have undergone as many structural changes as Axon Enterprise Inc (NASDAQ:AAXN) over the last 3 months. Formerly Taser International, the company ditched that name in April 2017 and re-branded as Axon Enterprise. It signaled a pivot for the business from simply selling smart weapons to selling a broad array of connected, smart devices. Management also decided that a good way to accelerate this transition would be to launch a program to equip every police officer in America with a body camera … on a free one-year trial.
Investors hated the idea. After all, Axon is a business, not a charity. How could they just give away their product and still expect to return value to shareholders?
AAXN stock dropped sharply on the news. I said buy that dip.
Since then, Axon stock has jumped from $21.50 to $25.20, a near 20% gain in just 3 months.
Those are some nice returns in a short time-frame, but investors shouldn’t start thinking about selling just yet. This may be just the beginning of the rally for AAXN stock.
Axon Is Just Getting Started
There is a lot to like about Axon, both from a bottoms-up and top-down perspective.
Firstly, the one-year pilot body camera program has progressed about as well as anyone could’ve anticipated. Most importantly, it’s resulting in sky-high product interest levels. Management announced in their May earnings call that in less than a month, they had received over 1,000 inquiries, which resulted in hundreds of qualified leads. Many of those inquires were from agencies that otherwise would not have been Axon customers. Management commented on the call:
“One major agency had previously told us they have no interest in body cameras, but once we began to discuss the national field trial offer, they’ve thought of 2 areas where they would like to trial the cameras and now say they will be moving forward.”
Since that May earnings call, interest has only grown. The company’s annual ‘Axon Accelerate’ Conference in June sold out.
Secondly, the company has compelling new products in its pipeline. This quarter, AAXN began shipping the Fleet in-car camera. Fleet, which features a direct camera to cloud workload that is fully integrated with the company’s cloud solution, is a natural extension of the company’s body camera business. Next quarter, AAXN is set to launch the Signal Sidearm holsters, a connected device that alerts officers when a gun is removed from its holster. Next year, the company is going to launch RMS (record management system), an advanced record keeping system.
With interest rocketing higher amid new product releases, Axon is set to benefit from a demand boom over the next several quarters.
And that brings me to my third point: that sky-high demand isn’t going to slow in the foreseeable future.
Look all around. Smart, connected devices are popping up everywhere. Whole sections of Best Buy Co Inc (NYSE:BBY) stores are dedicated to smart home devices, and that’s because all the biggest players are flooding into the space. Amazon.com, Inc. (NASDAQ:AMZN) and Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL) were really the pioneers, but now Apple Inc. (NASDAQ:AAPL) is jumping onto the scene with HomePod. Those are the three biggest, most note-worthy names in the consumer tech world. It should be interpreted as much more than a coincidence that they are all dabbling in the smart device market.
Beyond the headline names, companies like Philips Lighting NV have entered the space with their own line of Wi-fi enabled and smartphone controlled light bulbs (Philips Hue). Nest has made a name for itself selling at-home security cameras and smart thermostats.
Clearly, this trend of devices becoming smarter and connected is happening everywhere. Axon should be looked at as part of this secular growth trend. As homes become smarter, so too will workplaces and vehicles. Police departments are workplaces. Police cars are vehicles. With smart weapons, body cameras, car cameras, advanced record keeping systems and cloud services, Axon is making the law enforcement world smarter.
This trend is inevitable as law enforcement agencies getting smarter is inevitable. Considering how entrenched Axon now is in servicing the law enforcement world, Axon’s secular growth also looks inevitable.
Bottom Line on AAXN Stock
At the end of the day, Axon is at the forefront of a secular growth market.
The stock sits around $25. Just last year, it was at $30.
With multiple tailwinds in place, there is a clear runway for AAXN stock to run back up to $30 and even higher.
As of this writing, Luke Lango was long AAXN and AMZN.