Back in early 2017, one of my favorite undiscovered and underrated growths stocks was Axon Enterprise (NASDAQ:AAXN). The shares then were just above $22 a piece. Six months later, AAXN stock took off on a roller-coaster ride that’s still moving, but now 128% higher.

The bull thesis on the public safety/police equipment maker was simple. The law enforcement world was long overdue for a technology makeover. Axon, the leading and largely peerless provider of solutions which did just that, would benefit from a surge in police tech demand. Axon’s revenue and profits would soar. So would AAXN stock.

It’s now early 2019. That bull thesis has played out as planned. Law enforcement agencies around the globe have increasingly turned towards Axon to upgrade their underlying technology infrastructure, including implementing body cameras, dash cameras, and digital record keeping systems. Axon’s revenue growth has consistently run north of 20%. Profits have soared. And, Axon Enterprise stock took off from $20 in early 2017, to nearly $80 by mid-2018.

But, even as a long-term bull, I understand that valuation always matters. In mid-2018, the mid-$80’s valuation on AAXN stock didn’t add up. Since then, the stock has sputtered lower. Today, it trades hands around $52.

Now, with the stock 30% off-all time highs, it’s time to get bullish on Axon stock again. The earlier secular bull thesis remains in tact and the valuation now adds up. Plus, the shares appear to be back on a technical uptrend, and history suggests this direction could last for a while.

As such, I’m ringing the bull horn on Axon stock again. I don’t think it will quadruple again, like it did in 2017/18. But, I do think healthy gains are in store from here in 2019/20.

Axon’s Fundamentals Are Strong

The fundamental long-term growth narrative underlying Axon stock is both very simple and very strong.

In a nutshell, Axon provides technology solutions — body cameras, dash cams, smart weapons, and cloud-hosted software services — for law enforcement agencies around the world. These agencies aren’t exactly the most tech-savvy or up-to-date firms in the world. But, they need to be, in a world where technology is everywhere, all the time. As such, over the next several years, every law enforcement agency across the globe will look to significantly upgrade its technology infrastructure.

When they do, they will be greeted first by Axon, second by Axon, and third by Axon. In other words, Axon is not just the leading player in the law enforcement tech world, but also largely peerless in terms of quality and breadth of law enforcement tech solutions. That’s largely why Axon has mostly maintained its 20%-plus growth rate for a long time.

This will remain true for the foreseeable future. Axon is tackling some very big markets. Between smart weapons, body cameras, cloud solutions, and sensor solutions, Axon’s total addressable market is $8.4 billion. The company reported revenue of just $420 million last year (5% penetration), and those sales grew by 22% year-over-year.

In other words, this is a 20%-plus revenue grower tapping into just 5% of its sales potential in a market with relatively little competition. That gives Axon a long and clear runway for big revenue growth over the next several years. On top of that runway, Axon is pivoting to a largely software-focused business model with strong margins, and that move is expected to double EBITDA margins from 15% last year to 30% in the long run.

Overall, Axon stock is supported by a powerful long-term growth narrative built on robust revenue and profit growth for the foreseeable future. Thus, Axon stock is a great stock to own at the right price.

The Bull Thesis Looks Good Here

Right now, the price is right for adding AAXN stock to a portfolio.

Given the company’s massive addressable market, secular tailwinds, relatively muted competition, and current growth trajectory, I see Axon as a steady 15% revenue grower into fiscal 2025. That would put sales north of $1 billion by fiscal 2025. Also, I think EBITDA margins will hit their 30% long-term target by then, given current year-over-year margin expansion rates. Assuming a normal tax rate and mild share count growth, I think that will flow into roughly $4 in earnings per share by fiscal 2025.

Bottom Line on AAXN Stock

Software stocks tend to trade anywhere between 20- and 35-times forward earnings. Conservatively using a 25x forward multiple, $4 in EPS in fiscal 2025 implies a fiscal 2024 price target for AAXN stock of $100. Discounted back by 10% per year, that equates to a fiscal 2019 price target north of $60.

So, with Axon stock trading around $50, fundamentals- supported upside into the end of the year looks good.

Axon stock is a long-term winner that underwent some valuation friction headwinds in 2018. Those valuation friction headwinds are now in the rear-view mirror, and the stock has runway to stage a healthy recovery rally in 2019.

As of this writing, Luke Lango was long AAXN.