Axon Enterprise, Inc. AXON has been subject to rising operating costs and expenses over time. The company’s cost of sales increased 38.8% in the first quarter of 2026, on a year-over-year basis. Also, its selling, general and administrative expenses surged 15.9% in the first quarter.
Although AXON’s adjusted EBITDA in the quarter increased 29.9% year over year to $201.6 million, the adjusted EBITDA margin declined 70 basis points (bps) to 25%. AXON’s adjusted gross margin in the quarter also fell 200 bps to 61.6%. The decline was attributable to the adverse impacts of higher costs and expenses, global tariffs and increased investment in R&D.
Nevertheless, 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.
In first-quarter 2025, Axon Enterprise realigned its business segments to enhance its visibility into segment-specific performance and effectively manage costs. This strategic move is expected to continue supporting its margin performance and operational efficiency.
Peer’s Margin performance
In first-quarter 2026, Tyler Technologies’ TYL cost of sales and selling & marketing expenses both increased 6.4% on a year-over-year basis. Despite higher costs, Tyler Technologies’ gross margin improved 90 bps to 51.3% in the quarter, supported by revenue mix improvement and cloud efficiency gains.
Woodward, Inc.’s WWD total costs and expenses rose 23% year over year in second-quarter fiscal 2026 (ended March 2026). Woodward’s selling, general and administrative expenses also rose 22.1% 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 defense OEM demand.
AXON’s Price Performance, Valuation and Estimates
Shares of Axon Enterprise have gained 30.1% in the past three months against the industry’s decline of 0.3%.
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From a valuation standpoint, AXON is trading at a forward price-to-earnings ratio of 54.41X, above the industry’s average of 39.83X. Axon Enterprise carries a Value Score of F.
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The Zacks Consensus Estimate for AXON’s 2026 earnings has been stable over the past 60 days.
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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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