Why Axon Enterprise Stock Dipped Today

Shares of Axon Enterprise (AXON -4.55%) were falling today after the company beat estimates in its first-quarter earnings report. Investors seemed to think the results weren’t enough to justify the company’s high valuation.

As a result, the stock was down 4.7% as of 2:57 p.m. ET.

Image source: Axon.

Axon’s good but not-good-enough quarter

Axon, which makes the TASER electrical stun gun, as well as body and dashboard cameras for law enforcement, said that revenue in the quarter jumped 34% to $460.7 million, which was well ahead of estimates for $441.6 million. Growth was broad-based as TASER revenue jumped 33% to $178.7 million and software and sensors revenue rose 35% to $282 million.

Axon also showed off strong margin expansion, as adjusted gross margin improved from 59.9% to 63.2% and adjusted earnings per share rose from $0.88 to $1.15, beating estimates of $0.94. Axon’s strategy of selling hardware that connects to cloud software and services continued to pay off, driving strong growth on the top and bottom lines.

The company also talked up a new generative artificial intelligence (AI) software tool Draft One that will help police departments quickly write up reports, saving officers valuable time. Finally, it said it would acquire Dedrone, a drone and airspace security company, for an undisclosed sum.

Why Axon stock still fell

Axon also raised its guidance for the full year, calling for revenue growth of $1.94 billion to $1.99 billion, up from a range of $1.88 billion to $1.94 billion. This represented 26% growth at the midpoint.

Overall, the quarter seemed virtually flawless, but Axon stock has gotten expensive after surging more than 40% over the last year and investors seem to think a pullback was deserved. With a price-to-sales ratio of 12, the stock is still expensive, but the company’s execution has been superb.