Good buzz
04/03/18

Unless you’re in law enforcement, you hopefully don’t have first-hand experience with Axon Enterprise’s (AAXN) best-known product line. On the other hand, if you do, you’re probably sold on its effectiveness.

That paragraph would probably make more sense if Axon still went by its original corporate moniker, Taser International. Yes, Axon is the leading manufacturer of the electrical weapons that today are as commonplace in law enforcement as night sticks were a generation ago.

While electricity provider utility stocks have been one of the market’s bright spots in recent weeks, none of them have packed as much voltage as Axon, which busted out of a year-and-a-half consolidation after its last earnings report on February 27, skyrocketing 28% on February 28 and ultimately gaining as much as 49% when it peaked at $40.49 on March 12—topping the stock’s previous all-time high from 2015.

Axon Enterprise (AAXN) 5/16/11–4/2/18. Breakout to record high. Weekly AAXN price chart.

Source: OptionsHouse


The company blew the earnings door off its hinges on February 27, coming in at 13 cents/share vs. an expected 3-cent loss; revenues of $94.7 million handily topped estimates of $89.4 million.1

In the three weeks since, AAXN has traded in a range framed by that March 12 high and the March 19 low of $37.11—a fairly modest pullback given the explosiveness of the preceding rally. Midday yesterday the stock was hanging around $39.50, up roughly 0.5% on the day—no small feat given the S&P 500 (SPX) was down around 2% at the time.

Now traders must determine whether AAXN can extend its run, especially in the context of broader market weakness. Some analysts have described the stock as more-or-less fairly valued around current levels, and suggest bulls should look to buy on dips below the low of the current range.2 Other see additional upside, citing the company’s recession-resistant customer base (government agencies) and expanding product line: In addition to Tasers, Axon is making an aggressive push into the body camera market, as well as evidence-management software intended to revamp the traditional quagmire of police department paperwork.3

Axon Enterprise (AAXN) 1/10/18–4/2/18. AAXN daily chart. Current range

Source: OptionsHouse


Luckily, the current range offers traders concrete levels for making trade decisions. Although a close (or closes) below the current range—especially in conjunction with a broader market sell-off—could lead to a larger pullback for the stock, a push above the range may have similar potential for at least a short-term rally (again, especially if the broader market simultaneously mounts a rally).

The stock’s 10-day volatility is currently well below its 50- and 100-day averages, and near its level from early February. The longer AAXN sticks within its current range, the greater the chance it will make a momentum move that will cause traders caught on the wrong side of the market to cover their positions.

Market Mover Update: Monday’s decline in the Nasdaq 100 (NDX) was in keeping with the tech index’s tendency toward losses on the first day of April over the past 47 years. Although pundits say the market is arguably being driven right now by day-to-day trade-war developments and other news out of Washington, the historical record also shows bullishness on the second and third trading days of the month, which closed higher 64% and 62% of the time, respectively.

 

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1 StreetInsider.com. Axon Enterprise (AAXN) Tops Q4 EPS by 16c. 2/27/18.

2 Seeking Alpha. After The Big Pop, Axon Stock Is (Finally) Fairly Valued. 3/6/18.

3 Forbes. Why Taser Stock Could Have Shocking Upside. 3/13/18.