Axon Enterprise Stock Surges 33.9% YTD: Should Investors Buy or Wait?

Shares of Axon Enterprise, Inc. AXON have been showing impressive gains of late, rising 33.9% in the year-to-date period. Shares of the public safety technology solution provider have outpaced the industry and the S&P 500 composite’s growth of 23.5% and 5.4%, respectively. The company’s peers, including Kratos Defense & Security Solutions, Inc. KTOS and Leonardo DRS, Inc. DRS, have returned 69.3% and 43.7%, respectively, over the said time frame.AXON Stock’s YTD Price PerformanceImage Source: Zacks Investment ResearchClosing at $795.48 yesterday, the stock is trading below its 52-week high of $830.21 but significantly higher than its 52-week low of $279.02. The stock is also trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability.AXON Shares’ 50-Day and 200-Day SMAImage Source: Zacks Investment ResearchFactors Favoring the CompanyAxon Enterprise’s Connected Devices segment is thriving on the back of strong demand for TASER devices. Solid demand for virtual reality training services and counter-drone equipment is also supporting the segment’s growth. Segmental revenues increased 26.1% year over year in the first quarter of 2025. The company continues to witness growing popularity for its next-generation TASER 10 products, whose shipment began in first-quarter 2023. Growth in cartridge revenues, driven by the higher adoption of the TASER products, has been driving the segment’s performance.The company’s flagship body camera, Axon Body 4, is generating significant demand, thus bolstering the segment’s growth. Shipment of this body camera began in June 2023 and the customer response has been impressive so far.An increase in the aggregate number of users to the Axon network is aiding the Software & Services segment. After witnessing a year-over-year 33.4% jump in revenues in 2024, revenues from the segment increased 39% in the first quarter. Continued momentum in digital evidence management and increased demand for premium add-on features are driving the segment’s growth.Strong customer alignment, broader adoption across sectors and continuous product innovation led Axon Enterprise to raise guidance for 2025. The company now expects revenues to be in the band of $2.60-$2.70 billion compared with $2.55-$2.65 billion expected earlier, indicating growth of approximately 27% year over year at the midpoint.The company’s strategic partnership with other companies enables it to expand its product offerings and customer base. In June 2024, Axon Enterprise entered into a partnership with Skydio (a leading U.S. drone manufacturer) to introduce a comprehensive line of drones in public safety that includes a scalable Drone as First Responder (DFR) solution. The combined offering will support the company’s DFR programs across its customer base and strengthen its market position in this category.AXON’s Near-Term ConcernsThe escalating costs and expenses are a concern for Axon Enterprise’s bottom line. In the first quarter of 2025, its cost of sales increased 18.2% year over year. Also, in 2024, AXON’s cost of sales soared 39% year over year. The metric, as a percentage of sales, was 40.4%, up 160 basis points year over year. Also, the company’s selling, general and administrative expenses surged 48% and 49.8% year over year in the first quarter and 2024, respectively. AXON incurred high costs and expenses related to business integration activities, an increase in headcount and higher wages and stock-based compensation expenses. Increasing costs and expenses, if not controlled, are likely to hurt the company’s bottom line in the quarters ahead.AXON operates in the highly competitive public safety and conducted energy devices markets, comprising well-recognised providers of highly engineered products. As one of its peers, Kratos Defense serves as the unmanned aerial target drone system provider for the U.S. Air Force, Navy, Army and numerous allied foreign defense agencies. Leonardo DRS, another peer, engages in the design, manufacture and sale of defense electronic products and systems, and military support services worldwide.Stretched ValuationAXON’s lofty valuation remains a concern. The stock is trading at a forward 12-month price-to-earnings (P/E) ratio of 111.06X, much higher than the industry average of 47.79X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours. In comparison with AXON’s valuation, Kratos Defense & Security and Leonardo DRS are trading at 74.90X and 39.50X, respectively.Image Source: Zacks Investment ResearchAXON’s Earnings Estimate RevisionThe company’s earnings estimates for 2025 have decreased 0.8% to $6.34 per share over the past 60 days. However, the figure indicates year-over-year growth of 6.7%. Earnings estimates for 2026 have inched up 0.4% to $7.97 per share. The figure also indicates year-over-year growth of 25.7%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)Image Source: Zacks Investment ResearchFinal Take on AXONSolid momentum across the Connected Devices and Software & Services segments, along with its investments in the AI space, drones and robotics, positions AXON favorably for impressive growth in the long run. However, a few challenges, such as escalating operating expenses, premium valuation and tepid earnings estimates, are limiting this Zacks Rank #3 (Hold) company’s near-term prospects.While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.7 Best Stocks for the Next 30 DaysJust released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.5% per year. So be sure to give these hand picked 7 your immediate attention. See them now >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Kratos Defense & Security Solutions, Inc. (KTOS): Free Stock Analysis Report Axon Enterprise, Inc (AXON): Free Stock Analysis Report Leonardo DRS, Inc. (DRS): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks