Axon Enterprise (NASDAQ: AXON)
If you have noticed a major uptick in live and recorded bodycam footage from police officers on social media, it is thanks to a company called Axon Enterprise. Axon is America’s largest supplier of police bodycams and associated evidence services. You might know the company under its former name, Taser, the original brand of the electroshock weapon that is used to disable suspected criminals without doing serious bodily harm.
In 2008, the company switched its focus over to bodycams, an industry that has surged in demand over the years. Not only does the footage provide a view of police conduct, but it also serves as an excellent source of first-hand evidence in courts of law. Most importantly, it served as the gateway into Axon becoming a software-focused company.
Axon’s Evidence.com app is a cloud-based digital evidence management system. This allows easy uploads of bodycam footage that is secure and protected, ensuring a proper chain of custody before the court. Axon also provides several mobile apps and even a civilian-based app where non-police officers can upload their own evidence to prosecutors.
So, what makes Axon a potentially profitable investment? The company seems to be entering a hyper-growth mode stage and has built a near-monopoly in the US law enforcement industry. Axon has a relationship with 95% of law enforcement agencies across the country and over 17,000 agencies around the world in what it estimates to be a $50 billion total addressable market. So far, Axon has a net revenue retention rate of 121%, which means customers are willing to pay 21% more than the year before.
Last quarter, Axon had an impressive earnings beat and so far in 2023, the stock is up 31%. Over the past 52 weeks, Axon is up by an impressive 95%, well outpacing the benchmark S&P 500 index. Despite its overwhelming market share, Axon still calls these early days in its global adoption. It anticipates a 20% revenue growth in 2023 sparked by the recent release of its Taser 10 product and further adoption of its SaaS platforms. In March, Goldman Sachs initiated coverage with a Buy rating and a $263 price target, giving it 9 Strong Buy ratings from Wall Street analysts.
Floor & Decor Holdings Inc (NYSE: FND)
Floor & Decor might not immediately come to mind when thinking about high-growth, profitable investments. The company is relatively new, having only been established in 2000, but has rapidly expanded its footprint across the United States. As of the start of 2023, Floor & Decor had 191 locations and a strong online retail presence.
This company has a different approach to retail: the average store has about 78,000 square feet in area. If you want a comparison, the average Home Depot store is about 105,000 square feet and the average Costco warehouse is about 146,000 square feet. Floor & Decor takes the warehouse approach to provide full visual showrooms to customers as well as utilizing the space for ample storage.
With such a large retail area, Floor & Decor becomes a one-stop shop for all flooring and home decor products. In 2022, during the highest interest-rate environment in recent memory, Floor & Decor still showed growth despite the housing market coming to a screeching halt. Given the continued growth during this housing market, many analysts believe Floor & Decor can accelerate this when interest rates come back down. The company saw a 24.2% year-over-year rise in net sales last year, but understandably saw a modest decline in operating margins. For 2023, Floor & Decor guided for a year of lower growth given a potential recession and an anticipated drop in spending on home renovations.
Floor & Decor is taking steps to ensure future growth by targeting 30-35 new store openings in 2023. It is also focusing on higher-margin aspects of its business like design services and providing credit to customers who wish to finance their home renovations. Floor & Decor also has a unique direct supplier relationship with 24 different countries which eliminates added costs from agents, brokers, importers, and distributors.
While the next year or two might see some stagnant growth, patient investors will likely be rewarded when interest rates come back down and the economy is re-invigorated. At a fairly reasonable valuation of 2.5 times revenues and a focused effort on expanding its omnichannel retail presence, Floor & Decor could get back on its high-growth track once the Fed’s rate hike cycle is over.