Axon Enterprise Stock Surges Into Buy Zone On Solid Evidence

IBD Stock Analysis

  • In range from 105 buy point
  • Run from the bottom, recent stock history raise odds of pullback
  • Law enforcement contract wins bolster growth story

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Axon Enterprise is the IBD Stock Of The Day as the innovative maker of Tasers, body cameras and cloud-based evidence systems sees high demand for its law-enforcement solutions. After clearing a buy point Thursday amid a price-target hike, Axon stock rose further into buy range on Friday.


But investors should be aware that the AAXN stock chart and its recent history raise the risk of a pullback.

Axon Enterprise Contract Momentum

In July, Axon announced that Baltimore Police Department was deploying Axon Records, a cloud-based solution for handling records like incident reports. Axon Records, launched in September 2019, integrates police paperwork with Axon’s video evidence from its body-worn cameras.

In August, Axon began supplying the Toronto Police Service with 2,350 Axon Body 3 cameras and an extra 3,000 licenses to Axon Evidence, for managing video with tools such as redaction of faces.

In September, Axon announced a $13 million contract to supply 3,800 border patrol agents with Axon Body 3 cameras backed by Axon Evidence.

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Citing an estimated $101 million worth of new contracts approved in the third quarter, Northcoast Research analyst Keith Housum raised his price target on Axon stock to 112 from 104 on Thursday, keeping a buy rating.

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Axon Stock

Axon stock jumped 4.4% to 105.86 on Thursday, clearing a 105.00 buy point, according to a MarketSmith analysis. In Friday stock market action, Axon stock tacked on 3.1% to 109.16. Shares remain within the 5% chase zone recommended for maximizing chances of success. The chase zone runs through 110.25.

The run-up to Axon’s prior June 10 high of 104.90 began on June 1. That day Axon stock surged 18% amid national protests over the May 25 death of George Floyd under the knee of a Minneapolis police officer.

Axon stock’s relative strength line, the blue line in IBD-provided charts, shows that it is a touch below the June peak. That indicates Axon has slightly underperformed the S&P 500 in recent months, following its June surge. Ideally, the RS line will hit new highs with or even before the stock itself breaks out.

Stock Of The Day Risks

Axon stock pulled back after investors’ initial excitement that its high-tech systems could be a partial solution to excessive force. But since its Sept. 21 intraday low, Axon stock has been on a one-way street higher. Shares have fallen just two days in the past 3 weeks.

That’s bullish action, but cup-without-handle breakouts after running up from the bottom raise the risk that Axon stock will pull back, or at least consolidate. Also, Axon Enterprise breakouts over the past year have struggled or failed outright.

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Axon has a 93 IBD Composite Rating. The Composite Rating combines several key fundamental and technical factors into a single score. IBD research shows all-time stock winners often have a Composite Rating of at least 95 near the start of big runs.

Axon Enterprise Fundamentals

Axon Enterprise lost a penny a share during the most recent quarter, reflecting coronavirus shutdown impacts. But the company is solidly profitable with strong if decelerating revenue growth. Analysts expect Axon earnings to fall 12% to 92 cents a share in 2020, but then jump 52% in 2021.

Axon Police Reform Opportunity

William Blair analyst Jonathan Ho wrote in an Aug. 26 note that Axon’s technology can play a “vital role in public safety evolution.”

In an Aug. 6 letter to shareholder, Axon CEO Rick Smith wrote, “We believe we will look back on 2020 as a time that set in motion the next wave of policing reform.”

He added, “Technology is not a panacea but it can have an outsized impact on creating a world where everyone feels safer in their neighborhoods, and gets home safely at the end of the day.”

The Axon Body 3 camera automatically begins capturing video when the Taser is removed from the holster. Axon also recently released an app to provide livestreaming of video. That can aid situational awareness of officers coming to provide support.

Axon is now developing software that will enable “better data collection, accountability, investigation and compliance for force events, and helps agencies to better document, analyze and report on force incidents.”

FTC Vs. Axon

The FTC has challenged Axon’s May 2018 acquisition of Vievu, which won a big contract to supply the New York Police Department in the fall of 2016. Axon argues that Vievu was a “failing firm” that had no other takers, so antitrust restrictions shouldn’t apply.

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The FTC has outlined a sweeping remedy. Regulators want to have Axon transfer technology, customers and even its own employees as part of a plan to subsidize the cost of standing up a rival in the market for law enforcement body-worn cameras. It would take effect if FTC proceedings find Axon’s purchase violated antitrust rules.

Axon argues that the FTC administrative process is unconstitutional and wants the case heard in a neutral federal court. A federal judge dismissed Axon’s suit against the FTC, citing a lack of jurisdiction. Axon has taken its appeal to the Ninth Circuit Court of Appeals, which granted a temporary stay of the FTC process.

Please follow Jed Graham on Twitter @IBD_JGraham for coverage of economic policy and financial markets.


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