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Are Robust Financials Driving The Recent Rally In Axon Enterprise, Inc.'s (NASDAQ:AXON) Stock?

Simply Wall St · 05/29/2025 15:14

Axon Enterprise's (NASDAQ:AXON) stock is up by a considerable 43% over the past three months. Given the company's impressive performance, we decided to study its financial indicators more closely as a company's financial health over the long-term usually dictates market outcomes. Particularly, we will be paying attention to Axon Enterprise's ROE today.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Simply put, it is used to assess the profitability of a company in relation to its equity capital.

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How Do You Calculate Return On Equity?

Return on equity can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Axon Enterprise is:

13% = US$332m ÷ US$2.6b (Based on the trailing twelve months to March 2025).

The 'return' refers to a company's earnings over the last year. One way to conceptualize this is that for each $1 of shareholders' capital it has, the company made $0.13 in profit.

View our latest analysis for Axon Enterprise

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Axon Enterprise's Earnings Growth And 13% ROE

At first glance, Axon Enterprise seems to have a decent ROE. Even when compared to the industry average of 12% the company's ROE looks quite decent. This probably goes some way in explaining Axon Enterprise's significant 63% net income growth over the past five years amongst other factors. We reckon that there could also be other factors at play here. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Axon Enterprise's growth is quite high when compared to the industry average growth of 14% in the same period, which is great to see.

past-earnings-growth
NasdaqGS:AXON Past Earnings Growth May 29th 2025

Earnings growth is an important metric to consider when valuing a stock. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is Axon Enterprise fairly valued compared to other companies? These 3 valuation measures might help you decide.

Is Axon Enterprise Efficiently Re-investing Its Profits?

Given that Axon Enterprise doesn't pay any regular dividends to its shareholders, we infer that the company has been reinvesting all of its profits to grow its business.

Portfolio Valuation calculation on simply wall st

Summary

In total, we are pretty happy with Axon Enterprise's performance. In particular, it's great to see that the company is investing heavily into its business and along with a high rate of return, that has resulted in a sizeable growth in its earnings. Having said that, the company's earnings growth is expected to slow down, as forecasted in the current analyst estimates. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.