Axon’s body camera for police departments is a game changer. It has jumped ahead of rivals meaning the entire $1bn-$2bn market is theirs for the taking. As sales and development costs reduce, a 20% margin looks achievable. On a multiple of 19 times future earnings the stock could double.

The body worn camera is saving costs and becoming an essential part of every police department’s kit. Across many departments “use of force” is down around 50%, complaints are down c.50%, “guilty pleas” up 20% and savings of $4 for every dollar spent on cameras have been reported.

Axon is the market leader having sold 170,000 licences and is targeting the remaining 430,000 officers in the US and 1 million internationally. The company estimates the US market alone is worth $1bn. The international market could be worth a similar amount.

Since Axon started rolling out the camera it has doubled revenues as well as expenses (COGS and SGA) meaning little benefit for the bottom line. But that’s because it is taking costs now to win recurring revenues in the future. Higher revenues and lower costs mean one thing –PROFITS!!!

The virtuous circle here is driven by

1. High adoption rates will lead to higher adoption rates as police departments take comfort from using a proven product -- tested and used by other departments – essentially it means safety in numbers

2. Once adopted it will be sticky and offer pricing power to Axon as police departments will be reluctant to change given training costs and the risks associated with changing to a new product

Also significant operational leverage means once the fixed costs of rolling out the hardware and software is done – the costs associated with maintaining the business and collecting licence fees will be much reduced.

Assuming;

1. revenues grow to $1bn (while maintaining current gross margin of 50%)

2. SGA and development costs double again (which seems unlikely)

3. then the business would be generating a profit of c. $130m p.a.

On a multiple of 19 (thats pretty conservative with significant international growth potential) the stock would be worth $2.5bn or $47 per stock.

Thats 100% upside from here.

This is not a recommendation to buy or sell. Stocks are not suitable for all investors. Please do your own research.

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Submitted October 03, 2017 at 05:08PM by InterestingNews1 http://ift.tt/2xYBQP1