Axon (NASDAQ:AXON) Reports Strong Q3, Shares Jump 11.1%

On November 8, 2024By Littum

Aerospace and defense company AXON ( NASDAQ:AXON ) reported Q3 CY2024 results that topped market revenue expectations, with revenue up 31.6% year-over-year to $544.3 million. On top of that, next quarter’s revenue guidance ($565 million at the midpoint) was surprisingly good and 3.2% above what analysts were expecting. Its non-GAAP profit of $1.45 per stock was also 21% above analysts’ consensus estimates.

Is now the time to buy Axon? Find out in our full research report.

Income: $544.3 million vs analyst estimate of $525.4 million (3.6% beat)
Adjusted EPS: $1.45 vs analyst estimate of $1.20 (21% beat)
EBITDA: $145.1 million vs analyst estimate of $119.2 million (21.7% beat)
Revenue guidance for Q4 CY2024 is $565 million at the midpoint, above analysts’ estimates of $547.6 million
EBITDA expectation for the full year is $510 million at the midpoint, above analysts’ estimates of $480 million
Gross profit (GAAP): 60.8%, in line with the same quarter last year
Operating margin: 4.4%, down from 13.3% in the same quarter last year
EBITDA margin: 26.7%, up from 22.2% in the same quarter last year
Free Cash Flow Margin: 11.9%, corresponding to the same quarter last year
Market value: 34.73 billion dollars

“We spend a lot of time thinking about what can go wrong. But we also have to think about what can go right. Can we do better than today?” — Rick Smith, Axon founder and CEO

AXON (NASDAQ:AXON) provides body cameras and tasers for first responders and develops technology solutions and weapons products for military, law enforcement and civilians.

Many law enforcement vendors require licensing and approval to manufacture products such as firearms. These companies can enjoy long-term contracts with law enforcement and corrections agencies, leading to more predictable revenues. It remains unclear how the recent focus on excessive force and police accountability will affect demand in the longer term. On the one hand, lethal force products could become less popular. On the other hand, products such as body cams that help with the transparency of the police, become standard. In general, the fortunes of the sector will also ebb and flow with state or local budgets, and there is high risk to reputation as an accident or bad headline can change a company’s fortunes.

A company’s long-term performance is an indicator of its overall business quality. Although any business can experience short-term success, the best performers enjoy sustained growth for several years. Fortunately, Axon’s annual revenue growth of 32.6% over the past five years was incredible. This is a good starting point for our analysis because it shows that Axon’s offer resonates with customers.

At StockStory, we focus on long-term growth, but within industries, a half-decade historical view can miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Axon’s annual revenue growth of 34.6% over the past two years is above its five-year trend, suggesting that demand was strong and recently accelerated.

This quarter, Axon reported a stellar year-over-year revenue growth of 31.6%, and its revenue of $544.3 million topped Wall Street estimates by 3.6%. Management currently expects a 30.7% year-over-year increase next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 22.7% over the next 12 months, a slowdown from the past two years. Still, this projection is admirable and shows that the market takes into account the success of its products and services.

When a company has more cash than it knows what to do with, it can make a lot of sense to buy back its own shares – as long as the price is right. Fortunately, we found one, a low-cost stock that spreads free cash flow AND buys back shares. Click here for your special free report on a fallen angel growth story that is already recovering from a setback.

Axon was profitable for the past five years, but held back by its large cost base. Its average operating margin of 2.1% was weak for an industrial company.

On the plus side, Axon’s annual operating margin rose 11.5 percentage points over the past five years as its sales growth gave it huge operating leverage.

In the quarter, Axon generated a profit margin of 4.4%, down 8.9 percentage points from a year earlier. This decline shows that it was recently less efficient because its expenses grew faster than its revenues.

We track the long-term change in earnings per share (EPS) for the same reason as long-term growth in revenue. Compared to revenue, however, EPS highlights whether a company’s growth was profitable.

Axon’s EPS grew at an astonishing 47.4% compound annual growth rate over the past five years, higher than its 32.6% annual revenue growth. This tells us that the company became more profitable as it expanded.

Diving into the nuances of Axon’s earnings can give us a better understanding of its performance. As we mentioned earlier, Axon’s operating margin declined this quarter, but grew by 11.5 percentage points over the past five years. This was the most relevant factor (apart from the revenue effect) behind its higher earnings; taxes and interest expense can also affect EPS, but don’t tell us as much about a company’s fundamentals.

As with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Axon, its two-year annualized EPS growth of 57.8% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates from an already high base.

In Q3, Axon reported EPS of $1.45, up from $1.02 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be pleased with the results. Over the next 12 months, Wall Street expects Axon’s full-year EPS of $4.92 to grow 12.6%.

We were impressed by how significantly Axon blew past analysts’ EBITDA expectations this quarter. We were also thrilled that its revenue beat Wall Street estimates. Zooming out, we think this quarter offered some important positives. The stock rose 11.1% to $520.86 immediately after reporting.

Axon actually had a solid quarterly result, but is this stock a good investment here? We believe the latest quarter is only one piece of the long-term business quality puzzle. Quality, combined with valuation, can help determine whether the stock is a buy. We cover that in our actionable full research report, which you can read here, it’s free.