Why Axon Enterprise Stock Is Plummeting Today

Axon Enterprise (NASDAQ: AXON) stock is moving lower in Thursday's trading. The company's share price was down 10.9% as of 12:30 p.m. ET. Meanwhile, the S&P 500 (SNPINDEX: ^GSPC) was down 0.7%, and the Nasdaq Composite (NASDAQINDEX: ^IXIC) was down 0.8%.

The broader market is moving in a bearish direction today after Walmart issued guidance for weak growth, but there's also a company-specific catalyst behind Axon's valuation decline today.

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Axon stock sinks after analyst rating cut

Craig-Hallum lowered its rating on Axon from buy to hold. The firm also issued a one-year price target of $625 per share. The price target still suggests potential upside of roughly 18%, but the firm's analysts don't see enough upside potential to justify the risk and recommend buying shares right now.

While Craig-Hallum thinks that Axon's long-term growth story remains in place, its analysts raised concerns about the policing technologies specialist's valuation profile. The firm also pointed to the first quarter being a historically weak period for the business and its stock, and said that federal budget cuts and hiring freezes could translate into weaker near-term performance. Today's downgrade from Craig-Hollum follows yesterday's downgrade from Northcoast, which also cut its rating from buy to neutral.

What's next for Axon?

Following today's pullback, Axon now has a market capitalization of roughly $40 billion and is valued at approximately 83 times this year's expected earnings and 16 times this year's expected sales. While it has been serving up impressive sales and earnings growth, it's not surprising that some analysts are highlighting the risk that comes with the tech specialist's highly forward-looking valuation. Uncertainty surrounding Axon's near-term outlook has also been elevated due to the company's recent dissolution of its partnership with Flock Safety.

Axon has said that it will publish its fourth-quarter results after market close on Feb. 25, and it's possible that guidance for the current quarter will come in lower than some analysts had previously forecast due to the end of the partnership. On the other hand, the company's long-term growth outlook still looks quite promising, and buying shares on pullbacks could be a smart move using dollar-cost averaging.

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