My top Stocks and Shares ISA stock just rocketed 16%!

It was a great day for my Stocks and Shares ISA yesterday (5 July). My top holding, Axon Enterprise (NASDAQ:AXON), soared 16.3% to finish at $866, a new all-time high that brings the five-year return to an astonishing 837%.

The stock is now up around 210% in the past year, absolutely demolishing the S&P 500.

Another beat and raise

For those unfamiliar, Axon owns TASER, the brand of electrical weapons that continue to replace police bullets. According to the firm, TASERs have been used to save more than 300,000 people from death or serious bodily injury.

The company also sells body and dashboard cameras, as well as various software products and AI productivity tools. The integration of hardware and software has led to Axon being called the Apple of law enforcement. In other words, the operating system of public safety.

In Q2, revenue jumped 33% year on year to $669m, surpassing expectations for $641m. Incredibly, this was the company’s sixth consecutive quarter growing above 30%, and fourteenth above 25%.

Growth was driven by strong premium software adoption and robust demand for TASER 10 and Axon Body 4 (its next-generation hardware products).

Annual recurring revenue grew 39% to $1.2bn, highlighting how well its cloud software platform is doing. Meanwhile, adjusted EBITDA jumped 37% to $172m, helped by higher revenue and operating leverage.

Management lifted its full-year revenue guidance slightly to $2.65bn-$2.73bn, up from $2.6bn-$2.7bn. That would be approximately 29% annual growth at the midpoint.

Fair to say, Axon’s growth engine is firing on all cylinders.

Risks

However, after yesterday’s jump, the stock is now trading at around 20 times next year’s forecast sales. So there’s valuation risk here, especially if the firm encounters any growth hiccups in the next few quarters.

Another issue is rising competition as the company attempts to move deeper into the federal government space. This is potentially a very lucrative opportunity, but there are plenty of software firms vying to grab a slice of the action.

Emerging opportunities

Looking ahead, Axon’s future contracted bookings have surged to $10.7bn, up from $7.5bn the year before. As it typically signs long-term deals of five years or more, this implies that double-digit growth should continue for some time.

I find the AI opportunity exciting. The Axon Body 4 camera has a real-time translation feature, powered by AI, enabling police or border officers to communicate in over 50 languages during interactions.

In Q2, the firm closed almost $150m of bookings for its new AI Era Plan, a subscription service bundling various AI tools. One called Draft One, which transcribes bodycam audio and generates draft police reports, reportedly saves an officer up to 11 hours a week on paperwork.

Meanwhile, the opportunity for its counter-drone technology business is growing, especially after 117 Ukrainian drones recently destroyed Russian bombers. Stadiums, airports, and power plants might all now need protecting.

My take

Axon’s business is constantly getting stronger, so I certainly won’t be selling my shares. But the valuation is currently very high, so I also won’t be buying more.

Investors interested in the stock might want to consider buying on share price dips. There hasn’t been one for a while, but with the delayed tariff shock to the global economy still to come, a pullback might not be far off.

The post My top Stocks and Shares ISA stock just rocketed 16%! appeared first on The Motley Fool UK.

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Ben McPoland has positions in Axon Enterprise. The Motley Fool UK has recommended Apple and Axon Enterprise. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.