For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Axon Enterprise (NASDAQ:AXON). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.
Axon Enterprise's Improving Profits
In the last three years Axon Enterprise's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Axon Enterprise's EPS shot up from US$1.48 to US$1.95; a result that's bound to keep shareholders happy. That's a impressive gain of 32%.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. The music to the ears of Axon Enterprise shareholders is that EBIT margins have grown from 4.1% to 9.4% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.
In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Axon Enterprise's forecast profits?
Are Axon Enterprise Insiders Aligned With All Shareholders?
It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We do note that, in the last year, insiders sold US$909k worth of shares. But that's far less than the US$8.7m insiders spent purchasing stock. We find this encouraging because it suggests they are optimistic about Axon Enterprise'sfuture. We also note that it was the Independent Director, Hadi Partovi, who made the biggest single acquisition, paying US$4.8m for shares at about US$191 each.
Along with the insider buying, another encouraging sign for Axon Enterprise is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth US$997m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because on our analysis the CEO, Rick Smith, is paid less than the median for similar sized companies. For companies with market capitalisations over US$8.0b, like Axon Enterprise, the median CEO pay is around US$12m.
The CEO of Axon Enterprise was paid just US$33k in total compensation for the year ending December 2022. You could consider this pay as somewhat symbolic, which suggests the CEO does not need a lot of compensation to stay motivated. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Should You Add Axon Enterprise To Your Watchlist?
If you believe that share price follows earnings per share you should definitely be delving further into Axon Enterprise's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. We don't want to rain on the parade too much, but we did also find 2 warning signs for Axon Enterprise that you need to be mindful of.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Axon Enterprise, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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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.