• Investors may be wondering whether Axon Enterprise is attractively priced at around US$402 per share, or if the recent excitement has already been accounted for in the stock price.
• The share price recently closed at US$402.31, with a 1.3% gain over 7 days, a 2.5% decline over 30 days, and returns of a 28.6% decline year to date and a 36.0% decline over 1 year, set against longer term gains of 82.9% over 3 years and 198.6% over 5 years.
• These mixed returns have put valuation questions back on the table for many investors, especially those who have watched the stock through both earlier gains and more recent pullbacks. Recent attention around Axon Enterprise has focused on how its current share price compares with its long run growth record and perceived future prospects.
• Simply Wall St's valuation model currently gives Axon Enterprise a value score of 2 out of 6. The rest of this article will break down what that means using different valuation approaches, and then finish with a way to think about valuation that goes beyond any single model.

Axon Enterprise scores just 2/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Axon Enterprise Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a business might be worth today by projecting its future cash flows and then discounting those back to the present using a required rate of return.

For Axon Enterprise, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about US$92.5 million. Analysts supply detailed forecasts for the next few years, and Simply Wall St then extrapolates further out, with projected free cash flow of about US$1.90 billion in 2035 according to the ten year schedule provided.

Pulling all of those projected cash flows together and discounting them back results in an estimated intrinsic value of around US$371.93 per share. Compared with the recent share price of roughly US$402, the DCF output suggests Axon Enterprise is about 8.2% overvalued, which sits within a range many investors might treat as broadly in line with fair value.

Result: ABOUT RIGHT

Axon Enterprise is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Approach 2: Axon Enterprise Price vs Sales

For profitable companies that are still heavily focused on expanding revenue, the P/S ratio can be a useful way to think about value, because it compares what you pay for each dollar of sales rather than each dollar of current earnings.

What counts as a “normal” or “fair” P/S ratio usually reflects how quickly investors expect sales to grow and how risky those sales are. Higher expected growth and lower perceived risk tend to support higher multiples, while slower growth or higher risk often go with lower ones.

Axon Enterprise currently trades on a P/S of 11.66x. That sits above the Aerospace & Defense industry average of 5.00x and also above the peer group average of 7.42x. Simply Wall St’s Fair Ratio for Axon Enterprise is 14.31x, which is a proprietary estimate of the P/S multiple that might be reasonable given factors such as earnings growth, industry, profit margins, market cap and specific risks.

The Fair Ratio can sometimes be more useful than a simple peer or industry comparison because it adjusts for the company’s own growth profile, risk characteristics, profitability, sector and size, rather than assuming a one size fits all benchmark. Comparing Axon Enterprise’s current 11.66x P/S with the 14.31x Fair Ratio suggests the shares screen as undervalued on this measure.

Result: UNDERVALUED

P/S ratios tell one story, but what if the real opportunity lies elsewhere? Start investing in legacies, not executives. Discover our 17 top founder-led companies.

Upgrade Your Decision Making: Choose your Axon Enterprise Narrative

Earlier it was mentioned that there is an even better way to think about valuation. This is where Narratives come in, letting you attach a clear story about Axon Enterprise to your assumptions for future revenue, earnings and margins. You can then link that story to a forecast and a Fair Value that you can compare with today’s price, all within an easy to use tool on Simply Wall St’s Community page. The tool updates automatically when fresh news or earnings arrive and can reflect very different viewpoints. For example, one investor may see Axon as a long term software and data platform with a Fair Value of about US$606.83. Another may focus on sector multiple pressure and assign a Fair Value closer to US$521.24, or take a more optimistic view closer to US$925.00.

Do you think there's more to the story for Axon Enterprise? Head over to our Community to see what others are saying!

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.