Axon Enterprise Inc (AXON, Financial) recently experienced a daily loss of 4.55%, although it has gained 17.73% over the past three months. With an Earnings Per Share (EPS) of 3.42, investors might be curious if the stock is modestly overvalued. This article explores the valuation of Axon Enterprise, encouraging readers to delve into the analysis that follows.
Company Overview
Axon Enterprise Inc develops and manufactures products for law enforcement and private security. Its portfolio includes conducted energy devices and a suite of software and sensors for digital evidence management. Axon operates in two primary segments: Taser and Software & Sensors, with the latter being the major revenue contributor, primarily in the United States. Despite its current stock price of $312.73, the GF Value estimates its fair value at $260.15, suggesting that the stock might be modestly overvalued.
The GF Value Explained
The GF Value is a proprietary measure used to determine the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance, and future business performance estimates. If Axon Enterprise's stock price significantly exceeds this GF Value, it suggests that the stock may be overvalued, leading to potentially lower future returns. Conversely, if the price is below this value, the stock might offer higher future returns.
Financial Strength and Risk
Understanding a company's financial strength is crucial to minimize the risk of permanent capital loss. Axon Enterprise, with a cash-to-debt ratio of 1.86, ranks better than 68.61% of its peers in the Aerospace & Defense industry. This indicates a fair level of financial health.
Profitability and Growth Prospects
Axon Enterprise has maintained profitability over the past decade, with a notable operating margin of 9.9%. This ranks well within its industry, suggesting a robust competitive position. However, its growth metrics indicate some challenges, with a 3-year average EBITDA growth rate of 0%, which is lower than industry peers.
Investment Efficiency: ROIC vs. WACC
An effective way to evaluate a company's profitability and value creation is comparing its Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC). Axon's ROIC is currently 9.88%, which is below its WACC of 12.72%, indicating that it may not be generating sufficient returns relative to its capital costs.
Conclusion
While Axon Enterprise (AXON, Financial) displays signs of being modestly overvalued, its financial condition and profitability are fair. Investors should weigh these factors against the company's stagnant growth rates in certain areas. For a deeper understanding of Axon's financial health and stock potential, consider exploring its 30-Year Financials.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
