Meet the Newest Stock in the Nasdaq-100. It's Soared 110,600% Since Its IPO and It's Still a Buy Heading Into 2025, According to Wall Street.

The Nasdaq Composite is one of the closely watched stock market indexes in the U.S. The wide-ranging tech-focused index tracks the performance of roughly 3,000 stocks listed on the exchange. The Nasdaq-100 is a subsection of that index, tracking the performance of approximately 100 of the largest non-financial companies on the Nasdaq stock exchange. To be a component of the Nasdaq-100, a company must meet the following requirements:

• It must be listed exclusively on the Nasdaq exchange.
• It must be highly liquid.
• It must have been listed on an eligible exchange for at least three full calendar months.
• A minimum of 10% of its outstanding shares must be available for trading.
• It must not have filed for bankruptcy protection.

Axon Enterprise (AXON -1.18%) is the most recent addition to the Nasdaq-100, joining the benchmark on Dec. 23 as part of its annual rebalancing, replacing biotechnology company Moderna. Since the company’s IPO in mid-2001, the stock has soared 110,600% as of this writing.

The company is best known for its flagship Taser stun gun, but Axon has expanded its line-up of law enforcement-supporting technology. Despite its relentless run, many on Wall Street believe the stock is still a buy.

A law enforcement staple

Axon went public with the mission to “increase the safety of law enforcement officers, decrease suspect injuries, improve community relations, reduce litigation and police department medical and liability insurance costs, and potentially save lives.” The company’s flagship device, the Taser stun gun, has become a staple with law enforcement agencies everywhere, becoming a household name in the process. In the third quarter, the Taser segment grew 36% year over year to $221.7 million, representing 41% of Axon’s total revenue.

But that’s just the beginning. Axon is also the market leader in body cameras, in-car cameras, and sensors used by law enforcement officers to document their interactions with the public. Revenue for the segment grew 29% year over year to $322.5 million, accounting for 59% of the company’s sales.

Buried within each of these segments are Axon’s cloud services, which include a host of digital evidence management, real-time operations, and productivity tools. The company offers the No. 1 cloud software suite for public safety, rounding out suite of products and services.

Management notes that Axon’s offerings produce powerful flywheel effects. The company focuses on products and accessories to “ensure everyone gets home safely.” The growing adoption of these tools adds more people and more devices to its network, which generates additional data to be analyzed by Axon’s machine learning and artificial intelligence (AI) algorithms. What it learns helps the company identify the ongoing needs of its customers, resulting in more useful products and accessories — and the flywheel turns.

In the third quarter, Axon reported total revenue of $544 million, up 32% year over year. This resulted in adjusted earnings per share of $1.45, a 38% increase. At the same time, the company’s annual recurring revenue grew 36% to $885 million. In all, subscriptions now represent 95% of Axon’s total revenue.

There’s more. Axon notes that the average contract length is longer than five years, helping the company reach a net revenue retention rate of 123%.

Management believes the company’s growth streak will continue and raised its full-year outlook to revenue of $2.07 billion, which would represent growth of 32%, up from its previous forecast for 29% growth.

Axon’s penetration in the U.S. is respectable but still offers plenty of opportunity for growth ahead. In addition, its international expansion is still in the early stages, as is its foray into drones as first responders, so the company still has a fertile field to plow. Management estimates its total addressable market at $77 billion annually, which helps illustrate the magnitude of the opportunity that remains.

Analysts are still bullish on Axon

Wall Street is well-known for the diversity of its opinions, so it’s particularly noteworthy that all of the analysts who cover Axon are bullish. Of the 15 analysts who offered an opinion in December, every single one rates the stock a buy or strong buy. Its recent run has pushed the stock price above analysts’ average price target, so there are some who believe the stock has run too far, too fast. However, Wall Street is playing catch-up. Axon stock has received nine price target increases over the past couple of months on the strength of its blockbuster results.

Baird analyst William Power is Wall Street’s biggest bull, recently reiterating his outperform (buy) rating on the stock and increasing his price target to $800. This represents potential upside for investors of 27% compared to Friday’s closing price. The analyst recently met with management and came away enthusiastic about Axon’s integration of AI into its suite of services.

The one fly in the ointment is the stock’s lofty valuation. Axon is currently selling for 162 times earnings, which seems ridiculously expensive. However, that fails to take into account the company’s accelerating growth prospects. Using the more appropriate forward price/earnings-to-growth ratio, which factors in its impressive growth, reveals a multiple of 0.95 when any number less than 1 is the benchmark for an undervalued stock.

Furthermore, since Axon went public in April 2001, it has outperformed the broader market by a wide margin, generating gains of 110,600%, more than 112 times the 984% return of the Nasdaq-100.

Given the company’s consistent execution and expanding addressable market, I’d argue that Axon is a buy.