Axon Enterprises is up more than 30,000% since this company came public in 2001. That was a
big enough return to turn a $10,000 investment into more than $3 million
today! But is this company worth buying at today's prices? Let's run it through our
investing frameworks to find out my name is Brian Feroldi and my name is Brian Stoffel.
Thanks to stockcard.io for sponsoring today's video. Brian axon enterprises isn't exactly a
household name so tell us what does this company do well we might be more familiar with the name
that the company used to be known by which is taser international and that's because
the company got off the ground by making the stun guns that you see here that police forces
throughout the united states and increasingly the world used axon got its start with tasers
but made an interesting pivot about 10 years ago into the body camera business these cameras are
increasingly used by police officers firefighters and public servants around the world now what's
most interesting from an investing perspective is how the company has taken the data that it
collects from those cameras and created software solutions as a result like axon evidence where you
can store the footage and search it axon records which auto fills paperwork for police officers
who believe it or not spend two thirds of their time filling out paperwork or axon respond which
allows a dispatcher to see where police officers are in real time and coordinate a response to
life-threatening situations what's exciting for investors is that these new product categories
that the company has entered have been hugely popular with the market and that has helped
to drive this company's revenue up more than 26 annually over the last five years all right brian
let's start taking it through your framework what is axon enterprises mission statement it
is one of the best mission statements we've ever come upon it is simple and it is to protect life
three words inspirational simple optionable this is perhaps the best example i've ever seen of
mission statements done the right way moving on to the company's moat do you think it benefits
from the network effect i think that it does and it comes in two ways the first way is simply
that the company has developed an artificial intelligence or ai which only gets stronger as
more data is fed into it which makes the product more useful but also if police departments want
to share evidence or da's offices want to share evidence with each other then if they're both on
evidence.com it makes their ability to do that much easier so there is a network effect albeit
a weak one i agree with you there i think that they benefit from the network effect but like
you i think that it's weak how about switching costs absolutely and this is the big one if you
get all of your officers trained to use tasers axon body cameras and importantly the software
there's no way you're going to switch unless you absolutely have to and that really proves itself
out in the company's net dollar retention of 119 which means that axon not only holds on to all of
its customers but on average gets them to spend 20 percent more every year yeah i agree switching
costs is the big competitive advantage here how about low cost advantage i don't see that as a key
advantage here me either how about any intangibles brand or patents i think that the taser brand the
axon brand has gotten really strong within the enforcement community so i give them credit for
that fair enough how about counter positioning i don't see that as a key advantage okay moving
on to optionality does axon enterprises have it absolutely in spades if we just look at the
company's history and timeline we see that they went from being a simple manufacturer of stun guns
to a manufacturer of body cameras to today a fully integrated suite of software solutions that's hard
to imagine police department surviving without importantly all the products that they came up
with support the company's core mission so i think this company has optionality in spades all
right let's take a look at the books what is this company's financial position as of september 30th
2021. it's very strong a cash position of almost 600 million dollars absolutely no debt whatsoever
and even though the company is investing heavily in itself they've produced positive free cash
flows of roughly 100 million over the past 12 months this is going to be another great example
of the difference between free cash flow and net income this company is losing money on a gaap net
income basis but free cash flow positive if you need help understanding what that means
check out the video we made on that exact topic any concentration risk to be aware of none great
let's move on to skin of the game what do we see on glassdoor we see middle of the road reviews
3.7 stars isn't great for a founder like company that's still pretty small i wish it was higher
but it's not okay but is the founder still in charge absolutely rick smith founded this company
back in the 90s and he is still at the helm today great do insiders have skin in the game here well
depends on how you look at it on the one hand smith the founder only owns one and a half percent
of shares as of the last proxy statement insiders combined are just 2.3 that's not very high however
we need to do a little digging and we see that in 2018 smith forfeited all of his salary he has
zero guaranteed dollars coming in now why did he do that because there is a generous compensation
package in place where he only gets paid if the company hits several milestones if the company
doesn't do well then he won't do well so i give them credit for skin in the game his compensation
is directly tied to the stock price going up so that perfectly aligns his incentives with
outside shareholders like us before we show you our final scores we want to give a shout
out to our channel members thank you so much for joining our channel it really means a lot to us
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right brian let's take it from the top what'd you give this company for mission statement hey if i
could give more than two points i would but i stuck to that they nailed it mode i gave them
four points maybe i'm actually a little stingy but between the switching costs the network effect and
the brand that's where i landed fair enough how about optionality i gave them full credit for
this they went from being a device manufacturer to a software company great moving on to financials
what'd you give them there very strong balance sheet positive free cash flows they will get
stronger no matter what's coming up in the future concentration nothing to worry about so far so
good how about for glass door ratings they weren't terrible so i'm not going to take a point off but
they also weren't great so i'm going to give them zero okay is the founder still involved absolutely
and how about for ownership i decided to give them full credit because of the alignment of interests
brian that might surprise some of our viewers because normally you don't give full credit
unless somebody owns more than eight percent of shares outstanding but you're saying that because
of the structure of the executive compensation package you're willing to forego that absolutely
you got that just right perfect well let's add all that together and we get a total score of 12.
brian this is an anti-fragile business according to your framework we found one it's in that
green area should be no surprise i own a lot of shares all right let's move on to my framework
financially i gave this company a 14 out of 17. its returns on capitals were a little bit low
and its gross margin wasn't above 80 but overall there's a lot to like for moat i gave this company
full credit a little bit of points for the network effect a lot of points for the switching costs and
this company's mode is getting wider for potential i gave it a 17 out of 18. i only gave it a 6 out
of 7 on optionality you could even argue i was being too stingy there but this company clearly
has a lot of growth potential ahead of it for customer quality i only gave them a six out of ten
the biggest reason there is that it's expensive to onboard customers for revenue quality i gave them
an eight out of ten revenue is recession proof and recurring for management and culture i gave
them an 11 out of 14. wasn't exactly thrilled with the glass door ratings for the stock i gave it an
8 out of 11. the stock has absolutely thrashed the market's return and this company regularly beats
up wall street's estimates for the gauntlet i actually subtracted four points almost all
of that is due to high stock-based compensation mostly attributed to the ceo but if you add all
that together this company got a score of 80 on my scale that means i think this is a very high
quality business and on mine it got a 12. brian this is one of my highest conviction holdings
especially for one that is relatively small in the 10 to 12 billion dollar range yeah i think
this is an overlooked hidden gem of a business and like you i own shares although i don't own
nearly as much of this company as you do all right brian it's time to hold ourselves accountable
we're going to head on over to stock car.io and put this stock in both of our thumbs up portfolios
so i'm going to go to the antifragile portfolio which is your portfolio
i'm going to click new order and i'm going to type in axon for axon enterprises we're recording
we're going to do a buy decision today's date is monday the 29th this is a 177 dollar stock
so we're going to buy about six shares of it and this score uh 12 on your framework correct now
i'm going to head on over to my portfolio which is the brian for all the quality checklist i'm
going to do the exact same thing and while brian is doing this we're going to remind everyone who's
watching that you can follow our portfolios for free on stockcard.io what we really encourage
you to do is become a member and start your own portfolio tracking your investing decisions is one
of the best ways to become a better investor over time if you do decide to do that use the keyword
anti-fragile to get a 10 discount overall both of us were very impressed with axon enterprises
and think it's a hidden gem of business that more investors need to know about brian's out