Axon Enterprise Stock Skyrocketed in 2024 and Left the S&P 500 in the Dust. What's in Store for 2025?

Axon Enterprise (NASDAQ: AXON) is one of the world's premier law enforcement technology companies. And 2024 was an absolute banner year for its shareholders.

Axon Enterprise is a pioneer in less-lethal firearms with its well-known Tasers. But years after originally marketing the Taser, the company branched out into body cameras, cloud-based software, and (more recently) drones. And bundling these products and services for law enforcement agencies on a multiyear subscription has revolutionized its business.

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Growth has been stellar for Axon Enterprise in recent years and 2024 was no exception. After the company's third-quarter financial report, management said it was on pace to report full-year 2024 revenue of $2.07 billion, which represents a vigorous 32% growth rate.

With growth coming in hot, Axon Enterprise's shareholders enjoyed a great year. In 2024, Axon stock jumped 130%, skyrocketing past the 23% return for the S&P 500.

If you've heard of Axon Enterprise stock, then you're likely already aware that it jumped 130% last year. That's not what investors want to know. Rather, they want to know where it's going next. Well, here's what I think could happen with Axon stock in the coming year.

It starts with the business

There are multiple reasons to feel good about the foundation of Axon's business as well as feel good about its growth prospects long term.

For starters, Axon's annual recurring revenue and its future contracted revenue were both at all-time highs at the end of Q3 -- $885 million and $7.7 billion, respectively. As mentioned, much of the company's business is on a subscription plan, which is reflected in its recurring revenue. But its customers also sign contracts that are up to 10 years long, which is reflected in its future contracted revenue.

In short, it's unlikely that Axon's business will abruptly hit a wall in 2025. There's a better-than-average degree of visibility here.

Besides these promising metrics, Axon also has strong growth opportunities. Allow me to mention just three.

First, Axon's business can continue to grow with new products. One recent example of this is the company's diversification into drone technology. Military personnel are interested in these products as they seek to secure the skies in sensitive areas. But Axon's drones have also been put to use in emergency response situations, such as U.S. hurricane disaster areas.

Second, this leads into Axon's ability to grow with an expanded potential customer base. Whereas it's primarily served police departments in the past, the company is finding new potential customers, as illustrated by how it helped first responders recently. As another example, it recently landed a deal with cash distribution company Loomis. Axon's body cameras help Loomis by making its services more transparent and it perfectly illustrates how more enterprises are finding ways to use the things offered by Axon.

Third, Axon is also looking to international markets for growth. As of Q3, only 11% of revenue comes from outside of the U.S. but it's certainly a big opportunity as well as an area of emphasis from management.

I'll stop short of predicting a growth rate for Axon's business in 2025. But with its current momentum and so many ongoing opportunities, I'll bet that this year will be another great year for the company. That's good.

A look at the stock

While Axon Enterprise is relatively obscure company, investors seem to be well aware of how fast it's growing and how much more it could grow long-term. When investors are generally optimistic, a stock's valuation tends to get quite expensive and that's certainly the case here. As the chart below shows, the price-to-sales valuation of Axon stock has recently spiked to the priciest levels in over a decade.

AXON PS Ratio data by YCharts

I believe this is something for today's investors to take into account. While the long-term growth potential for Axon is among the very best, growth is rarely steady -- it's prone to accelerations and decelerations. And when shares are pricey, as they are now with Axon, any hint of deceleration can lead to big pullbacks, especially in the short term.

For this reason, it's hard to predict what will happen with Axon stock in 2025 even though the business is much easier to predict. The business has recurring revenue, contracted revenue, and ripe opportunities -- it will almost assuredly grow at a strong rate. But small hiccups could cause investors to panic because the stock is expensive.

I think this underscores why taking a long-term view is crucial. In reality, measuring Axon stock over a single year is too short of a time frame -- almost anything can happen. I think its valuation should motivate investors to approach this investment cautiously. But investors should definitely keep an eye on the business because Axon appears to still have many years of growth in front of it.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Axon Enterprise. The Motley Fool has a disclosure policy.