Axon Enterprise Inc. (AXON)

Conclusion

Axon Enterprise is a US public safety technology company. It sells cloud software for capturing and managing digital evidence, alongside hardware such as TASER devices, body cameras and drones. On 2026-11-09 the share price was 303.18 USD, giving a market capitalisation of 24.7 billion USD and an enterprise value of 26.0 billion USD.

The verdict is undervalued. Four of the five multiples sit below their own ten-year medians: price to earnings is 95.4 against a median of 113.4, EV to EBITDA is 57.1 against 95.9, price to sales is 7.2 against 11.2, and price to book is 6.6 against 11.0. Price to free cash flow is 305.1 against a median of 126.0. The fair value band runs from 377.55 to 566.32 USD, with a midpoint of 471.94 USD and a margin of safety of 55.7%. A discounted cash flow value is not available because trailing free cash flow is negative, and no reverse DCF figure is available to set the growth the price implies against the growth delivered. Revenue grew at a 32.5% five-year compound rate, while earnings per share fell at a 14.9% three-year compound rate.

The case rests on the balance sheet and on revenue growth. The Altman Z-score is 4.02, the current ratio is 3.0, and revenue has grown at a 32.5% five-year compound rate. The weakest numbers are return on invested capital of 7.2% against a WACC of 11.45%, which is a negative ROIC minus WACC of -4.25%, trailing free cash flow after stock-based compensation of -562.7 million USD, and a five-year share count growth of 10.1% a year.

Financial health

Financial strength is green, held up by a Z-score of 4.02, a current ratio of 3.0 and a quick ratio of 1.75. Net debt to EBITDA of 2.9 and interest coverage of 3.2 are neutral, and debt to equity is 0.79. The Altman Z-score of 4.02 sits in the safe zone, though the model was designed for manufacturers and Axon is a software and hardware company. Insolvency risk is low, about 0.8% by the estimate of the Ohlson model over one to two years, based on year-end 2025 figures. The balance sheet can absorb the current losses, but the leverage multiple and the thin interest cover mean the margin for error is narrower than the liquidity ratios suggest.

Earnings quality

Earnings quality is yellow, because the cash conversion and forensic signals are good but dilution and stock-based pay are heavy. Free cash flow conversion is 31.3% on a trailing basis but 102.9% over five years. The accrual ratio is -1.5%, and the Beneish M-score of -2.42 gives an unlikely reading for earnings manipulation. The Piotroski score is 5 of 9. Stock-based compensation equals 18.8% of revenue, and free cash flow after it is -562.7 million USD. The share count has risen 10.1% a year over five years. The company beat earnings estimates in six of the last eight quarters, with an average surprise of 21.3%. However, estimates for the current year were cut by 7.4% over 90 days, and estimates for next year by 9.7%.

Profitability

Profitability is red. Gross margin of 58.5% is below its ten-year median of 61.2%, while operating margin of 3.75% is above its median of 3.3%, and net margin of 7.6% is above its median of 5.5%. The decisive number is return on invested capital of 7.2% against a WACC of 11.45%, a negative ROIC minus WACC of -4.25%, which means the company currently destroys value. Its five-year median ROIC was 14.2%, so returns have fallen. Return on equity of 6.9% looks low once the DuPont split is read: the equity multiplier of 2.16 means leverage adds to return on equity, while the asset turnover of 0.397 and net margin of 4.49% are modest. The tax rate is recorded as zero.

Growth

Growth is yellow. Revenue compound growth is 32.7% over three years, 32.5% over five years and 30.2% over ten years, and revenue grew in all ten of the last ten years. Earnings per share are weaker, with a compound fall of 14.9% over three years, though they grew 13.1% a year over ten years. Free cash flow per share fell 32.8% a year over three years and was almost flat over ten years, at 0.3% a year. Consensus expects next year's earnings to grow 33.6%, but that forecast has been revised down over the past 90 days. Top-line growth is the strongest part of the story, while per-share cash generation has lagged.

Valuation

Valuation is green. Price to earnings is 95.4 against a ten-year median of 113.4, a premium of -15.9%. EV to EBITDA is 57.1 against 95.9, a premium of -40.5%. Price to free cash flow is 305.1 against 126.0, a premium of 142.2%. Price to sales is 7.2 against 11.2, a premium of -35.8%, and price to book is 6.6 against 11.0, a premium of -40.2%. The discounted cash flow value is not available because trailing free cash flow is negative; the model uses a discount rate of 12.24% and a terminal growth rate of 2.5%. The fair value band is 377.55 to 566.32 USD, with a midpoint of 471.94 USD, and the fair value from historical multiples is 471.94 USD. The band is built on fixed assumptions, including a 5% equity risk premium and capped growth, so it is an order of magnitude and not a price target. The company pays no dividend.

Risks

The main risk is that the return on capital never reaches the cost of capital. A ROIC of 7.2% against a WACC of 11.45% means each new dollar of capital currently earns less than it costs, and the historical fair value would not hold if that persists. Negative trailing free cash flow of -562.7 million USD, after stock-based compensation, means the company relies on its balance sheet and on the cash generation it expects. Continued dilution of 10.1% a year would reduce the value of each share. Net debt to EBITDA of 2.9 and interest coverage of 3.2 leave less room if earnings fall. Estimate revisions are moving down, so the next-year growth forecast of 33.6% carries risk. Not available: a discounted cash flow value and a reverse DCF. This analysis has no debt maturity schedule and no revenue by segment, so it cannot show when debt falls due or which of the two segments drives growth.