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On several occasions in recent years, I have had to reduce my holdings Axon Company (NASDAQ: AXON) to stop it from fully controlling My Shares and ISA Shares.
A quick look at the stock price chart shows why. It is now up 757% in five years, for an average compound annual rate of 54%!
Without a doubt, this was a good problem to have. I was able to put in some of the gains harvested in other stocks that have also done well, incl Rolls-Royce again Taiwan Semiconductor Manufacturing (TSMC).
Admittedly, there have been bad choices, such as adding to it Modern again Diageo. However, one big winner in the long run will more than compensate for the many losers.
The weeds wither as important as the flowers bloom. Over time, it takes a few winners to do wonders.
Warren Buffett
The problem
My new ‘problem’ is that Axon’s share price has actually gone up in recent months.
Once again, my ISA has taken over, leaving me with a bit of a problem. That is: do I sell more shares or leave the position alone?
The growth of the stock was made by the amount that measured the eyes, however that was also the case when I last reduced my holding. Since then, it has doubled, meaning I missed out on more returns.
Of course, I wouldn’t have thought like this if the stock had dropped 50% recently. I’ll be patting myself on the back, proud of my discipline and portfolio risk management skills.
A giant of the law
Axon is the company behind the popular yellow Tasers, and body cameras worn by many police officers. However, this Hardware is often integrated with software (recurring income), which provides access to its cloud-based evidence management system (Axon Evidence).
It has a near monopolistic position in its industry, achieved through constant innovation. This was on display in Q3, as it highlighted growth opportunities in virtual reality training, robotics, and using drones as 24/7 first responders to incidents.
Revenue jumped 32% year-on-year to $544m, while operating cash flow rose 45% to $91m. Full-year guidance rose slightly to $2.07bn (32% growth).
However, it was the artificial intelligence (AI) commentary that was really interesting. Police spend up to 40% of their time writing reports (not what most signed up for).
Therefore, I expect their new product Draft One to be very good for customers. This is an AI-powered tool that automates the writing of police reports, using bodycam audio to generate draft reports in seconds, saving officers a lot of time.
Axon will allow customers to subscribe to a growing set of AI capabilities and features. Essentially, what it offers here is AI-as-a-service, and it can be another big revenue driver.
I let it work
Another risk is that Axon is focused on growing more with government agencies. However, this is a highly competitive field with established defense contractors and technology companies vying for government contracts.
Also, I expect volatility in the share price if there is a market selloff.
Looking ahead, I think law enforcement will be well funded under Donald Trump, which benefits Axon.
To weigh things up, I’ll leave the catch alone for now. I think it is set up for more benefits in the long run.
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