Axon (AXON)

Self defense company AXON (NASDAQ:AXON) reported Q3 CY2025 results topping the market’s revenue expectations, with sales up 30.6% year on year to $710.6 million. Guidance for next quarter’s revenue was better than expected at $752.5 million at the midpoint, 1.3% above analysts’ estimates. Its non-GAAP profit of $1.17 per share was 24.1% below analysts’ consensus estimates.

Company Overview

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

Many law enforcement suppliers companies require licensing and clearance to manufacture products such as firearms. These companies can enjoy long-term contracts with law enforcement and corrections bodies, leading to more predictable revenue. It is still unclear how the recent focus on excessive force and police accountability will impact longer-term demand. On the one hand, lethal force products could become less popular. On the other hand, products such as body cams that aid in the transparency of policing could become standard. Generally, the sector’s fate will also ebb and flow with state or local budgets, and there is high reputational risk, as one mishap or bad headline can change a company’s fortunes.

AXON’s peers and competitors include MSA Safety (NYSE:MSA) and Motorola Solutions (NYSE:MSI)

Examining a company’s long-term performance can provide clues about its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, Axon grew its sales at an incredible 32.5% compounded annual growth rate. Its growth surpassed the average industrials company and shows its offerings resonate with customers, a great starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Axon’s annualized revenue growth of 32.1% over the last two years aligns with its five-year trend, suggesting its demand was predictably strong.

This quarter, Axon reported wonderful year-on-year revenue growth of 30.6%, and its $710.6 million of revenue exceeded Wall Street’s estimates by 0.8%. Company management is currently guiding for a 30.8% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 24.8% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is noteworthy and indicates the market is baking in success for its products and services.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Axon was profitable over the last five years but held back by its large cost base. Its average operating margin of 1.7% was weak for an industrials business.

On the plus side, Axon’s operating margin rose by 14.4 percentage points over the last five years, as its sales growth gave it immense operating leverage.

In Q3, Axon’s breakeven margin was down 4.7 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

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

Axon’s EPS grew at an astounding 41.4% compounded annual growth rate over the last five years, higher than its 32.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Axon’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Axon’s operating margin declined this quarter but expanded by 14.4 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like 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 annual EPS growth of 35.2% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.

In Q3, Axon reported adjusted EPS of $1.17, down from $1.45 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Axon’s full-year EPS of $6.78 to grow 5.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Axon has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.9% over the last five years, better than the broader industrials sector. The divergence from its underwhelming operating margin stems from the add-back of non-cash charges like depreciation and stock-based compensation. GAAP operating profit expenses these line items, but free cash flow does not.

Taking a step back, we can see that Axon’s margin dropped by 4.1 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Axon’s free cash flow clocked in at $33.38 million in Q3, equivalent to a 4.7% margin. The company’s cash profitability regressed as it was 7.9 percentage points lower than in the same quarter last year, which isn’t ideal considering its longer-term trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although Axon has shown solid business quality lately, it struggled to grow profitably in the past. Its five-year average ROIC was negative 3%, meaning management lost money while trying to expand the business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Axon’s ROIC has increased. This is a good sign, but we recognize its lack of profitable growth during the COVID era was the primary reason for the change.

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Axon is a well-capitalized company with $2.38 billion of cash and $2.10 billion of debt on its balance sheet. This $277.5 million net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Axon beat analysts’ revenue and EBITDA expectations this quarter, driven by strong performance in its software and services segment. We were also glad its full-year revenue guidance slightly exceeded Wall Street’s estimates. On the other hand, its EPS missed and its EBITDA guidance for next quarter fell short, making this a weaker quarter. The stock traded down 14.3% to $608 immediately following the results.

Updated: December 3, 2025 at 10:20 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

There are several reasons why we think Axon is a great business. For starters, its revenue growth was exceptional over the last five years. And while its relatively low ROIC suggests management has struggled to find compelling investment opportunities, its growth in unit sales was surging. Additionally, Axon’s expanding operating margin shows the business has become more efficient.

Axon’s P/E ratio based on the next 12 months is 77.8x. Expectations are high given its premium multiple, but we’ll happily own Axon as its fundamentals shine bright. We’re in the camp that investments like this should be held for at least three to five years to negate the short-term price volatility that can come with high valuations.

Wall Street analysts have a consensus one-year price target of $822.50 on the company (compared to the current share price of $540.49).