Can Axon Sustain EBITDA Margin Momentum Amid Cost Pressures?

Axon Enterprise, Inc. AXON achieved a solid adjusted EBITDA of $710 million in 2025, which surged 36.3% year over year. The company's adjusted EBITDA margin reached 25.5%, reflecting an increase of 50 basis points (bps). This improved margin not only reflects its strong operational efficiency but also benefits from the continued adoption of its premier products and solutions.

Despite rising operating expenses, AXON’s gross margin in 2025 grew 10 basis points to 59.7%. The improvement in margins was driven by higher revenues generated from robust sales of TASER 10, Axon Body 4, personal sensors and platform solutions products. It’s worth noting that the company reported revenues of $797 million in fourth-quarter 2025, which increased 39% year over year.

Axon Enterprise’s focus on effective cost management and revenue growth is expected to expand its margin performance. For 2026, AXON currently expects adjusted EBITDA margin of approximately 25.5%.

It's worth noting that, effective first-quarter 2025, Axon Enterprise realigned its business segments. This realignment has been enhancing the company’s visibility into segment-specific performance and enabling it to effectively manage its costs. This strategic move is expected to continue supporting Axon Enterprise’s margin performance and operational efficiency.

Peer’s Margin performance

Among its major peers, Kratos Defense & Security Solutions, Inc. KTOS is facing cost pressure. In 2025, its cost of sales increased 22.4% year over year, while its SG&A expenses rose 11.2%. Kratos Defense’s gross margin declined 240 bps to 22.9% in the quarter.

Woodward, Inc.’s WWD cost of sales rose 20.8% year over year in first-quarter fiscal 2026. Woodward’s selling, general, and administrative expenses increased 36.3% year over year. Despite the increase in costs, Woodword’s segmental margins expanded, which was driven by higher sales, improved mix of commercial services activity and solid defense OEM demand.

AXON’s Price Performance, Valuation and Estimates

Shares of Axon Enterprise have declined 21.7% in the past three months against the industry’s growth of 2%.

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From a valuation standpoint, AXON is trading at a forward price-to-earnings ratio of 52.45X, above the industry’s average of 44.52X. Axon carries a Value Score of F.

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The Zacks Consensus Estimate for AXON’s 2026 earnings has increased 4.8% 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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