Billionaire Steven Cohen Sells Apple Stock and Buys a Little-Known AI Stock Up 500% in Less Than 3 Years

Investors should avoid this stock.

Axon is a public safety company that works with U.S. law enforcement, the federal government, commercial enterprises, and certain international governments. While Axon is best known for conducted energy devices sold under the Taser brand, the company also provides body cameras and other sensors that integrate with software for digital evidence management, reporting, and real-time situational awareness.

Importantly, Axon has added a number of artificial intelligence features to its software products, such as automatic transcription and redaction of video evidence, as well as automated license plate reading. Its latest AI product, Draft One, uses body camera recordings to draft off police reports. Draft One achieved a $100 million revenue pipeline faster than any product in company history.

Axon reported solid financial results in the third quarter. Revenue increased 32% to $544 million on strong sales growth in Tasers, body cameras, and digital evidence management software. Meanwhile, non-GAAP (generally accepted accounting principles) earnings increased 19% to $1.45 per diluted share. The company also raised its full-year outlook, such that revenue is projected to increase 32% in 2024. Axon is well positioned to maintain its growth trajectory.

The company is the market leader in Tasers, body cameras, and digital evidence management software, and it has momentum in drones and robotics. CEO Rick Smith recently said, “We are positioning ourselves as the indisputable leader in delivering the power of AI in practical, usable applications.” Yet Axon has captured less than 3% of its $77 billion addressable market, leaving a long runway for growth.

Unfortunately, valuation is somewhat concerning. Wall Street expects the company’s earnings to increase at 22% annually through 2025. That estimate makes the current multiple of 120 times adjusted earnings look very expensive. Having said that, Axon reported earnings above the consensus in the last 12 quarters, and it beat the consensus by an average of 34% in the last six quarters.

If that pattern continues, the stock may appear reasonably valued in hindsight. So, risk-tolerant investors with a time horizon of at least three to five years should consider buying a very small position today.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Axon Enterprise. The Motley Fool has positions in and recommends Alphabet, Apple, and Axon Enterprise. The Motley Fool has a disclosure policy.

Billionaire Steven Cohen Sells Apple Stock and Buys a Little-Known AI Stock Up 500% in Less Than 3 Years was originally published by The Motley Fool