Axon Plunged To a 2-Year Low. Here's Why It Could Be a Golden Buying Opportunity

Axon Enterprise (AXON -18.18%), the firm renowned for its Taser electrical weapons and body cameras, experienced a significant 18% decline in its stock price on Friday. This drop followed the company's announcement of weaker-than-expected third-quarter earnings. The primary issues were a revenue shortfall and cautious guidance for the upcoming fourth quarter.

In Q3, Axon's revenue rose 28% to $908.6 million, lower than the consensus estimate of $934.3 million. For Q4, the company projected revenue between $990 million and $1.01 billion, reflecting only a 25% increase, the slowest growth rate since late 2021 and below the consensus estimate of $1.07 billion. However, the revenue discrepancy was attributed to a timing issue rather than declining demand or more fundamental problems.

The $30 million Federal Dedrone deployment, which was initially expected to be recognized in Q3, was delayed, causing the earnings miss. Furthermore, Piper Sandler highlighted that Axon's gross margin in its product division, which includes Taser, fell below 50%, and the fourth quarter may have been the company's poorest since Q3 2025.

Craig-Hallum even downgraded the stock to neutral, pointing to weak Taser performance and volatility in federal contracts due to delayed revenue recognition. In response to the revenue decline, Axon adjusted its free cash flow guidance for the year from $450 million to $350 million-$400 million, citing accelerated inventory growth to enhance product availability and supply chain resilience.

The company also reported lower legacy Taser volume, while its connected devices revenue grew by 16.3%, and adjusted gross margin dropped from 52.1% to 44.6% due to increased counter-drone equipment and higher memory costs. Taser sales dipped by 2% compared to the same quarter last year. The introduction of Taser Ion, Axon's most versatile Taser device to date, is expected to boost sales.

Management stated that the dynamic of lumpy one-time revenue payments with Federal Dedrone contracts is new and that they would adopt a more conservative approach to guidance, better communicating the impact of timing-sensitive hardware. Despite the 18% drop, Axon's stock is now at its lowest point in over two years, and the share price has declined 64% from its all-time high.

While this sell-off may seem concerning, it is crucial to understand that Axon's demand remains strong. CFO Joshua Isner reassured investors that revenue expectations remain solid, and the company continues to invest in its future, including a $1.2 billion investment in Skydio, a leading drone technology company, which now represents 37% of its stake.

Historically, Axon's strategic moves have paid off, and there are no red flags indicating diminished growth prospects. Consequently, the stock trades at a price-to-sales ratio of 7, considered a good value for a company with a proven growth rate of 30% annually and expected to continue this trend in the coming year. Investors who capitalize on the current market conditions may reap significant rewards in the long run.