Axon Enterprise (AXON) is back in focus after management spotlighted rapid traction in its Dedrone counter drone platform, alongside strong quarterly results and a higher full year revenue outlook that underscore growing investor attention.

The latest Dedrone update and raised guidance come against a mixed backdrop for Axon Enterprise, with the share price up 15.42% over the past month but down 21.07% year to date, while the 3 year total shareholder return of 127.10% and 5 year total shareholder return of 156.68% point to a stock that has rewarded patient holders even as the 1 year total shareholder return is down 44.68%.

If this kind of security focused AI theme interests you, it could be worth widening the lens beyond Axon and checking out our screener of 33 AI small caps.

With Axon Enterprise now trading at $444.73, sitting at a value score of 1 and at a discount to some analyst and intrinsic estimates, the key question is whether this reflects a genuine opportunity or if the market is already accounting for potential future growth.

Most Popular Narrative: 26.7% Undervalued

Axon Enterprise's most followed narrative pegs fair value at $606.83, above the last close of $444.73, which naturally raises questions about what is driving that gap.

One company I find particularly interesting is Axon Enterprise. Many investors still associate the company primarily with TASER devices, but I think the more compelling part of the story is how Axon has quietly transformed itself into a software and data platform for public safety. What began as a hardware business is increasingly becoming an ecosystem built around digital evidence, cloud software, and connected policing tools.

Want to understand why this narrative supports a higher fair value for Axon Enterprise? The valuation leans heavily on recurring software revenue, expanding data usage and a profitability profile that assumes a very different business mix over time.

Result: Fair Value of $606.83 (UNDERVALUED)

However, this hinges on Axon Enterprise sustaining its software momentum. Any slowdown in adoption or pushback on public safety tech spending could challenge that thesis.

Another View: Axon Enterprise Through a Sales Multiple Lens

While the most popular Axon Enterprise narrative points to a fair value of $606.83, the current P/S of 12x tells a tougher story. It sits well above both peers at 8.5x and the US Aerospace & Defense industry at 5.7x, even though the fair ratio is estimated at 15.6x. That gap suggests investors are already paying a premium, so the key consideration is whether Axon’s growth and margins are sufficient to justify that level of valuation risk.

Next Steps

Given the mixed sentiment around Axon Enterprise, it makes sense to move quickly and review the underlying data, risks and potential rewards yourself. To see both sides clearly, check out the 1 key reward and 3 important warning signs

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.