Can Axon Enterprise Sustain Margin Performance Amid Rising Costs?

Axon Enterprise, Inc. AXON has been subject to rising operating costs and expenses over time. The company’s cost of sales increased 35.2% to $357.9 million in the second quarter of 2026, on a year-over-year basis. While, its selling, general and administrative expenses surged 20.1% to $291 million in the quarter; research and development expenses were up 28.4% to $209 million.

Nevertheless, the company’s adjusted EBITDA margin expanded 110 basis points year over year to 26.8%, driven by strong revenue growth and benefits from global tariff refunds. In the second quarter, its total revenues surged 35.3% year over year to $904.4 million and came ahead of the Zacks Consensus Estimate of $868.4 million. The results were driven by strong demand for Dedrone, TASER 10 and Axon Body 4, with growing adoption of software solutions.

The company’s focus on effective cost management, revenue growth and manufacturing efficiency is anticipated to boost its margin performance. For 2026, AXON currently expects an adjusted EBITDA margin of approximately 25.5%, relatively flat year over year. The company has set a long-term financial target to achieve about 28% of adjusted EBITDA margin by 2028, supported by annual revenues of $6 billion.

Peer’s Margin performance

In second-quarter 2026, Tyler Technologies’ TYL cost of sales and selling & marketing expenses increased 4.7% and 9.9%, respectively, on a year-over-year basis. Despite higher costs, Tyler Technologies’ adjusted gross margin improved 150 bps to 50.4% in the quarter, supported by revenue mix improvement.

Woodward, Inc.’s WWD total costs and expenses rose 14% year over year in third-quarter fiscal 2026 (ended June 2026). Woodward’s selling, general and administrative expenses also rose 20.1% year over year. Despite the rise in costs, Woodward’s segmental margins expanded, which was supported by sales growth, improved mix of commercial services activity and solid commercial OEM demand.

AXON’s Price Performance, Valuation and Estimates

Shares of Axon Enterprise have gained 25% in the past month compared with the industry’s growth of 2.7%.

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From a valuation standpoint, AXON is trading at a forward price-to-earnings ratio of 64.7X, above the industry’s average of about 39X. Axon Enterprise carries a Value Score of F.

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The Zacks Consensus Estimate for AXON’s 2026 earnings has declined over the past 60 days.

Image Source: Zacks Investment Research

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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