One of the obvious truths about financial markets is that bear markets offer the best opportunity to buy high-quality stocks at a discount. Of course, there are some important caveats.
It’s wise to slowly accumulate given the uncertainty of bear markets and the prospect of weakness in the indices affecting all sectors of the market. This is even more notable for growth stocks in the current environment given the added headwind of higher short-term rates.
It’s also best to avoid stocks and companies whose revenues are connected to economic or monetary factors. These types of investments are typically found when the secular trend is powerful enough to offset cyclical factors or the company’s business is unique enough to not be exposed.
On the flip side, one benefit of bear markets is they are a real-time, stress test for companies to prove the viability and sustainability of their growth and business models during adverse conditions. In today’s article, I want to talk about a company that is accomplishing this – Axon Enterprises (NYSE: AXON) – and why it’s our featured growth stock of the week:
Axon was previously known as Taser and has been a successful stock as its primary product became quite ubiquitous. The company also has become one of the leading providers of body cameras (bodycams) to law enforcement and has about 80% market share.
Now, the company has a new budding segment that is poised to overtake these businesses in the long term – providing cloud and IT services related to operations such as evidence management. Currently, this segment is growing by about 35% on an annual basis, while its legacy businesses are growing at 18%. The cloud and IT services segment also sport higher gross margins at 77%.
AXON is one of the top growth stocks, because all of its major units are growing at a double-digit rate. In some ways, AXON’s revenues are connected to overall police spending and with the rising salience of crime as a political issue, this growth is likely to continue.
Note that this is in an environment that is absent of quality growth opportunities given the damage inflicted by higher rates and a recessionary environment. Over the last decade, EPS has grown by 7x and revenues by 6x.
Value investors who are too myopically focused on ratios might not appreciate AXON, but the company has a powerful moat given that it has built a reputation and trust with law enforcement personnel. Further, the business will benefit from network effects as more information shared between agencies and departments will increase the odds of solving crime.
Further, police funding has trended higher as both parties are eager to show voters that they are doing something given rising crime rates. Thus, the stock is not connected to economic or monetary factors which deserves a premium in this market environment.
What makes them “MUST OWN“?
All 9 picks have strong fundamentals and are experiencing tremendous momentum. They also contain a winning blend of growth and value attributes that generates a catalyst for serious outperformance.
Even more important, each recently earned a Buy rating from our coveted POWR Ratings system where the A rated stocks have gained +31.10% a year.
Click below now to see these top performing stocks with exciting growth prospects:
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AXON shares were unchanged in after-hours trading Friday. Year-to-date, AXON has declined -9.51%, versus a -17.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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