Axon Enterprise Inc

Axon Enterprise Inc (Nasdaq: AXON) manufacture and sell Conducted Energy Weapons for military forces, law enforcement, private security personnel and for personal defence.

Investment Highlights – WATCH at USD 173.61

• The Company has turned into a net loss in Q1 FY21 from net profit in the same quarter the last year, due to the higher operating expenses.
• The Covid-19 pandemic can lead to the cancellation of contracts, while the economic downturn can affect revenue generation.
• From a technical standpoint, 14-day RSI (58.74) is in the overbought territory, while the stock price is hovering above the middle Bollinger Band.
• In terms of valuation multiples – EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow and Price/Book of AXON are quite overvalued against the Industrials sector.

Key Risks

• The resurgence of Covid-19 cases can have an adverse impact on the Company’s operations.
• The Company has limited financial resources due to lack of profitability, and growth trajectory is dependent on external funding at the right time on acceptable terms.

Recent News

New Contract: On 9 July 2021, AXON announced that Toronto Police Service has deployed Axon's advanced de-escalation tool, the TASER 7.

Q1 FY21 Financial Highlights (for three months ended 31 March 2021, as of 7 May 2021)

 (Source: Company Website)

• Revenue jumped 33% during Q1 FY21 and beaten the management’s internal estimates, supported by the growing demand for software-heavy body camera bundles and TASER devices.
• The new products bookings were 130% up year-on-year, as the Company expanded in new markets.
• As of 31 March 2021, cash and cash equivalents and investments totalled US$674 million, while the Company reported no debt.

One Year Share Price Chart

 (Data Source: Analysis done by Kalkine Group)

Conclusion

The lossmaking AXON seems overstretched, while the Company is not able to provide net income guidance given the inherent difficulty to ascertain expenses. Moreover, economic conditions are quite uncertain due to the Covid-19 pandemic, which can worsen credit loss. The stock has shown rapid growth in the past year, while the ramped-up capital expenditures can aggravate the net losses, if it fails to generate substantial revenue. The stock made a 52-week high and low of USD 212.37 and USD 78.28, respectively.

Based on the overstretched stock position, worsened losses, uncertain outlook, volatile market conditions, we have given a "WATCH" stance on Axon Enterprise Inc at the closing market price of USD 173.61 (as of 15 July 2021), while we look forward to reviewing H1 FY21 results. 

Beam Global

Beam Global (NASDAQ: BEEM) develops patented infrastructure products and is regarded as a CleanTech leader for the electrification of transportation.

Investment Rationale – Speculative Buy at USD 29.47

• Over the past year, BEEM has given a stellar return of around 145.79%, showing outperformance against the benchmark Nasdaq index.
• The Company is likely to get benefit from the rapid demand for highly scalable EV charging infrastructure.
• Following the public offering, the Company is prepared for the planned growth with a robust cash position.
• It has received contracts from the Federal Government and won several new contracts in FY20.
• From the technical standpoint, BEEM’s stock price is in the oversold territory with 14-day RSI (38.97), while the price is hovering close to lower Bollinger Band.

Risk Assessments

• The Company has a short operating history which makes it difficult to evaluate prospects.
• It faces intense competition while the Company is exposed to a rapid change in technology.
• The Covid-19 pandemic can result in the delay of contracts, and thus, it can impact the cash flows.

Q1 FY21 Trading Update for the quarter ended 31 March 2021 (as on 24 May 2021)

 (Source: Company Website)

• During Q1 FY21, revenue increased to US$1,372,392 from US$1,317,052 in Q1 FY20, supported by diversified customers and markets.
• However, due to the increased costs for the new EV ARC™ 2020 unit, BEEM reported a gross loss of US$149,120.
• As of 31 March 2021, BEEM had US$28.2 million in cash, which is sufficient to fund its operations for the next twelve months.

One Year Share Price Chart    

 (Data Source: Analysis done by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative) 

Conclusion

BEEM can invent and manufacture renewably energized products to tap the dramatic demand EV charging infrastructure. It is trading close to 52-week low with positive technical stance and can generate substantial value for its shareholders. The Company reported smaller than the expected losses in Q1 FY21 and witnessed a strong level of demand for its products. The encouraging government spending on electric vehicle charting stations can support the growth in the long. Overall, the Group has the ability to benefit from the industry trends, and substantial cash reserves to pursue market opportunities. Stock 52 week High and Low were USD 75.90 and USD 10.53, respectively.

Based on solid operational performance, industry prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” stance on Beam Global at the closing price of USD 29.47 (as on 15 July 2021), with lower double digit upside potential based on 27.50x EV/NTM Sales (approx.) on FY21E Sales (approx.). 

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.