Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as Axon Enterprise, Inc. (NASDAQ:AAXN), with a market cap of US$3.6b, often get neglected by retail investors. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at AAXN’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into AAXN here.
Is AAXN’s debt level acceptable?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. A ratio below 40% for mid-cap stocks is considered as financially healthy, as a rule of thumb. The good news for investors is that Axon Enterprise has no debt. This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with AAXN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Does AAXN’s liquid assets cover its short-term commitments?
Given zero long-term debt on its balance sheet, Axon Enterprise has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at AAXN’s US$166m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$558m, with a current ratio of 3.36x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
AAXN has no debt as well as ample cash to cover its short-term liabilities. Its safe operations reduces risk for the company and its investors, but some level of debt may also boost earnings growth and operational efficiency. This is only a rough assessment of financial health, and I'm sure AAXN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Axon Enterprise to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AAXN’s future growth? Take a look at our free research report of analyst consensus for AAXN’s outlook.
- Valuation: What is AAXN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AAXN is currently mispriced by the market.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.