When it comes to growth investing, the most important thing you can do is put your money to work in companies that represent the future. The second most important thing you can do is invest in tomorrow’s leaders at the right price.

When it comes to law enforcement technology solutions provider Axon (NASDAQ:AAXN), you get one of those two things, but not both. Axon stock is undeniably a growth stock because the company represents the future of law enforcement globally. But, Axon stock also trades above what I feel is a fair price at the present moment.

What does that mean in terms of investment implication? Axon stock is a long-term winner due to strong long-term fundamentals. But, a presently overstretched valuation will keep this stock stuck in neutral for the foreseeable future.

In other words, the smart move with Axon stock is wait for a better entry. This is a name you want to own for the long haul. But not here, and not at current prices.

Axon Is a Winning Investment

There is one very important criteria for picking long-term winning investments in the stock market: make sure the company you’re investing in represents the future.

Axon does represent the future. For all intents and purposes, Axon is the future of law enforcement. Technology is starting to rapidly converge on the law enforcement industry, and this convergence has the potential to improve a great number of things across many aspects of policing, including officer safety, community trust, record-keeping efficiency, data management, and much more.

In simple terms, Axon has stepped in and dominated this market. Officer safety? Axon offers a suite of non-lethal smart weapons which are gaining traction everywhere. Community trust? Axon offers a suite of body and car cameras to hold officers accountable for their on-duty actions. These, too, are gaining traction everywhere. Record-keeping efficiency? Axon offers a suite of cloud hosted solutions which allow law enforcement agencies to leverage technology to optimize data management and record-keeping. Adoption here has been robust, with Axon Cloud revenues up nearly 80% last quarter.

Everywhere you look across the law enforcement world, Axon is using technology to improve operations and outcomes. Importantly, they are doing so without much competition. In the smart weapons world, Axon holds upwards of 90% market share and is unchallenged. The same is true in the body camera market, and in the cloud solutions market. Any competitor Axon has run into in these markets has either been squashed or acquired by Axon.

Improving law enforcement operations and outcomes through technology is a potentially huge market. Axon management pegs it as $6.5 billion global opportunity. Sales last year were roughly $340 million. Thus, this company is tapping into just 5% of its global addressable market. Moreover, considering the lack of viable competition, there really isn’t much stopping Axon from controlling a vast majority of this $6.5 billion market at scale.

On top of all this, Axon is turning primarily into a software and services business with high margins and recurring revenue streams. Thus, not only does Axon have a visible pathway to billions of dollars in sales over the next several years, but this company also has a visible pathway for margins to march higher alongside robust revenue growth. Big margin expansion plus big revenue growth equals really big profit. Really big profit growth is the fuel for big growth stocks like Axon.

Overall, there is little doubt in my mind that Axon stock is a long-term winning investment. This is a company that represents the future of law enforcement, and is supported by a long-term growth narrative that comprises robust revenue, margin, and profit growth potential.

But Axon Stock Is Overvalued Here and Now

The other important criteria for picking growth stocks is price. You don’t want to buy big-growth names blindly. Instead, you want to buy them at the right price.

Right now, the price is not right for Axon stock. Everything is firing on all cylinders for the company. Yet, revenue growth was just 25% last quarter. Moreover, revenue growth is expected to slow to ~20% this year. Over the next several years, U.S. market growth will slow, while international market growth will remain robust. This combination will likely lead to somewhere around 15-20% growth.

Assuming that growth rate persists over the next decade, then you are talking about a company with $1.7 billion revenue potential by fiscal 2027. Also assuming margins head towards management’s long-term targets by then of 30% or higher, that $1.7 billion should flow into roughly $6.60 in earnings per share by fiscal 2027.

A growth-average 20x forward multiple on that implies a fiscal 2026 end price target for Axon stock of $132. Discounted back by 10% per year, that equates to a fiscal 2018 end price target of just over $60. Thus, Axon’s current $65 price target seems a bit overstretched.

Bottom Line on AAXN Stock

Axon stock is a long-term winner. But, investors can afford to wait for better prices before buying into this winning stock. If Axon heads back towards $60, that would be a dip worth buying. Until then, the sidelines seem like the best place to wait.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.