Is Axon Enterprise Stock a Buy, Sell, or Hold in 2025?

The new year is only two months old, but there's already been plenty of excitement around Axon Enterprise (NASDAQ: AXON).

The law enforcement technology stock was one of the best performers on the S&P 500 in 2024, more than doubling last year, leaving investors wondering if it can keep up its momentum in 2025. As the chart below shows, Axon is down for the year as an analyst note about a fallout with partner Flock Safety led to a sharp sell-off in the third week of February. A better-than-expected fourth-quarter earnings report helped recoup some of those losses.

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AXON data by YCharts

So is Axon a buy, sell, or hold in 2025? Let's examine the arguments for each one below.

Image source: Axon.

Buy Axon: The business is on fire

The main reason to buy Axon at this point seems to be that the company continues to execute across the board, and the business is firing on all cylinders.

The company just completed its third straight year with revenue up more than 30%, and margins continue to expand. Revenue jumped 33% to $2.1 billion in 2024 and it reported generally accepted accounting principles (GAAP) net income of $377 million. Axon, which is best known for Taser electrical stun guns and body cameras, is delivering strong growth across the board, and its software business continues to grow rapidly. The company is now generating $1 billion in annual recurring revenue, primarily from its software products, which have helped create switching costs and a competitive advantage.

Management also expects a strong performance in 2025, calling for 25% growth at the midpoint of its range of $2.55 billion to $2.65 billion.

Beyond its current results, there are a number of reasons the company looks poised for success over the next three to five years. First, it's innovating with new products like Draft One, a generative artificial intelligence (AI) tool that automatically takes footage from body cameras and dashboard cameras and generates initial drafts of police reports. The early response from police has been overwhelmingly positive as it's a valuable time-saver, and it should pave the way to more value-adding AI products from Axon.

Additionally, the company is expanding its addressable market into the enterprise sector, saying that it won its largest deal ever last year, from a global logistics company. That shows there's a significant market for body cameras beyond just law enforcement, and that's likely to pave the way to more growth as well.

Sell Axon: The valuation is too high

In some ways, Axon stock is a victim of its own success as the valuation has steadily expanded in recent years, putting pressure on the stock. Currently, it trades at a price-to-sales ratio of about 20, which is expensive, but it doesn't seem unreasonable for a company of its growth rate and its technological advantage. Palantir, which is growing at a similar rate to Axon and serves an adjacent market, trades at a price-to-sales ratio of around 70, by comparison.

Investors also seem anxious about the fallout from the dissolution of the Flock Safety relationship. However, management addressed that on the call with President Josh Isner saying the response was "somewhat overblown." He said that Axon did exit a partnership with Flock, but was hopeful that both sides would come back to the bargaining table and restart that partnership as Flock had rejected the terms that Axon had asked for.

While that may be a setback for the stock for now, it sets it up for a strong recovery if Axon can forge an agreement with Flock.

Hold Axon: The stock is fully priced

At this point, Axon may be due for a breather after more than doubling last year, and the sell-off on the Flock news shows the stock seems to be priced for perfection. At this point, investors may be wise to hold the stock if they own it, but wait for a better entry point to buy it as there are plenty of signs that the broad market is frothy and concerns about federal budget cuts, weak consumer demand, and inflation could all put pressure on the stock this year.

At its current valuation, there is room for the stock to move lower, even if the company executes on its goals for the year and meets or exceeds guidance.

What should investors do about Axon stock?

Given the company's track record and its ability to capitalize on new AI technology through products like Draft One, the stock continues to look like a strong buy.

While the valuation may deter some investors, it's not as much of a risk as it was earlier in the year as the stock is now down 26% from its previous peak, setting up an opportunity for recovery and making it significantly cheaper than it was just a couple of weeks ago.

Regardless of what happens in the broader stock market or even with AI technology, Axon has strong momentum and looks well positioned for success over the next few years. It's a smart buy for long-term investors.

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Jeremy Bowman has positions in Axon Enterprise. The Motley Fool has positions in and recommends Axon Enterprise and Palantir Technologies. The Motley Fool has a disclosure policy.