By Steven M. Sears
Donald Trump's second presidential term is likely to send America's law-enforcement institutions into a turbocharged operational tempo.
The president-elect has advocated stronger, tougher policing, in the wake of the woke policies that many people feel have diminished life in many cities. He has said that local police could be used to deport illegal migrants and has advocated rough treatment for shoplifters who have created epic problems for retailers. Various critics, in turn, fret that Trump will militarize law enforcement.
If Trump does indeed declare war on criminals, Axon Enterprise's products should be in high demand.
The $36 billion company makes Tasers, which are essentially electric stun guns that are used in lieu of firearms to subdue criminals. It makes body cameras that record police interactions with civilians, too.
Axon also offers Fusus, a real-time crime center platform that integrates cameras, sensors, and data sources onto a huge screen that gives police a God's-eye view of what is happening in their town or city. There seems to be little difference between Axon's system and command centers that military leaders use to manage theaters of war.
We last recommended Axon in mid-August when the stock was at $369. Shares are now trading around $610. An extraordinary advance in about three months would normally merit caution and profit-taking, but Axon's business is so strong -- and the potential demand for its products is so intense -- that a bullish stance seems more compelling.
In its recent third-quarter earnings release, Axon reported about $1.5 billion in revenue and earnings of $1.45 per share. Automation increased profit margins by about 50 basis points. (A basis point is a hundredth of a percentage point.) Management told analysts on a conference call that the company might set financial records in the fourth quarter.
Such is the state of America.
Axon considers drones to be a huge opportunity, said Rick Smith, Axon's founder and CEO, on the company's post-earnings conference call. He shared a story about someone in Pennsylvania who had reportedly armed a drone with a pipe bomb and was planning to fly it into critical infrastructure.
The story underscores the threats faced by police departments -- and product opportunities for companies like Axon, which could develop counterattack drones to shoot down weaponized drones.
Smith told the analysts that there hasn't been "that much of that kind of activity here in the U.S., but it's certainly growing all over the world, and we certainly hope it doesn't come here."
Investors are buying into Smith's narrative and Axon's market opportunity. So far this year, the stock has gained 136%.
You can use the options market to get paid to buy the stock at lower prices. By selling a cash-secured "put spread" -- that is, selling one put option at a lower strike price than the stock and selling another with an even lower strike price and similar expiration -- investors collect money for agreeing to buy the stock at two prices that are below the stock price. (A put sale obligates the seller to buy shares at a set price within a set period; "cash secured" means the seller has set aside the funds to purchase the shares.)
Intrigued? Consider selling March puts that are about 5% to 10% below Axon's stock price. The idea is to provide enough time for Trump's agenda to be announced and digested by policymakers and police departments.
The risk to selling puts is that the stock could fall far below the put strike prices, but that seems unlikely with a new, tough-on-crime administration set to take over Washington.
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(END) Dow Jones Newswires
November 22, 2024 21:30 ET (02:30 GMT)
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