Axon Enterprise’s (NASDAQ:AXON) stock has seen a significant increase of 15% over the last month. In light of the company’s strong performance, we have decided to examine its financial metrics more closely, as the long-term financial health of a firm usually influences market outcomes. Today, our focus will be on Axon Enterprise’s return on equity (ROE).
Return on equity (ROE) serves as a key metric for evaluating how effectively a company generates profits from the investments made by its shareholders. In essence, ROE indicates the profit produced for each dollar invested by shareholders.
Check out our latest analysis for Axon Enterprise
The ROE formula is as follows:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
Utilizing the formula provided, we calculate the ROE for Axon Enterprise as follows:
14% = US$297m ÷ US$2.1b (Based on the trailing twelve months ending September 2024).
Here, the ‘return’ represents the annual profit. Therefore, for every $1 invested by shareholders, the company has generated $0.14 in profit.
To summarize, we’ve established that ROE is an indicator of a company’s profitability. Based on how much profit the company decides to reinvest or “retain,” we can assess its future profit-generating capabilities. Generally, all else being equal, companies with high ROE and profit retention tend to experience greater growth than those without these characteristics.
At first glance, Axon Enterprise appears to have a respectable ROE. When compared to the industry average of 12%, the company’s ROE stands out as impressive. This likely contributes to the company’s remarkable 64% net income growth observed over the past five years. Additionally, it suggests that other factors, such as robust earnings retention or effective management, may also be supporting the company’s earnings expansion.
Moreover, when we compare Axon Enterprise’s growth to the industry average, we find that its net income growth is significantly higher than the industry’s average of 12% during the same period, which is indeed encouraging.
The value ascribed to a company is largely dependent on its earnings growth. Investors should ascertain whether projected earnings growth or decline is already reflected in the stock price, as this informs them about the company’s prospects. If you’re curious about Axon Enterprise’s valuation, take a look at its price-to-earnings ratio relative to the industry.
