Not financial advice. Education only.
I'm sharing how I personally think about this stock and how I size positions, for educational purposes. It is not a recommendation to buy, sell, or hold anything, and it isn't tailored to you. Your goals, timeline, and risk tolerance are different from mine.
Figures are as of the October 5, 2026 close, from the sources linked below. Stock data moves fast, so verify current numbers yourself.
Axon Enterprise (AXON), the company behind the Taser and police body cameras, closed at $411.81 on October 5. That is about 46% below its 52-week high of $764.02 and roughly 21% below where it closed on August 6. A drop like that catches my attention. In this post I'll walk through the last two months of daily candles, what I think caused the fall, and how I'm thinking about it as a small, deliberately limited position.
The Last Two Months, Day by Day
Each candle below is one trading day. Green means the stock closed higher than it opened, red means lower. The thin line (the wick) shows the day's high and low.
The chart tells a three-part story:
- The earnings gap. After Q2 results, the stock dropped hard on August 6 even though the company beat on revenue and earnings.
- A quick recovery. It climbed back into the $600s by mid-August. The market seemed to decide the reaction was overdone.
- A long slide. From the end of August the stock kept falling, and it hit $408.00 on October 5, the lowest point in this two-month window. No single big day drove it. My own read is that this is largely a time correction: the business kept growing, but the stock had run ahead of it, so the market let the price drift lower while the numbers caught up to the multiple. I can't prove that, and margins and financing are real factors too (more on those below), but it's how I frame it.
What Changed
- The business itself is still growing fast. Q2 revenue was $904 million, up 35% year over year. Management raised full-year growth guidance to 32%–34%. Annual recurring revenue is about $1.6 billion, net revenue retention is 126%, and future contracted bookings are $15.1 billion, up 40% (Investing.com).
- Margins are the worry. Management said Q3 will see higher memory costs and won't repeat the tariff refund that helped Q2, with margins expected to recover in Q4. Full-year adjusted EBITDA margin guidance stayed at about 25.5% even though revenue guidance went up.
- Financing drew scrutiny. News of a new $1.0 billion zero-coupon convertible note deal added to the unease. Convertible notes can dilute shareholders later, and the balance sheet currently shows about $1.85 billion in debt against about $693 million in cash (StockAnalysis).
- The valuation was demanding to begin with. At the August peak the stock traded around 244 times trailing earnings. When a stock is priced for near-perfection, small disappointments get punished.
What I mean by a time correction
A price correction is a sharp fall on bad news. A time correction is slower: a stock that got too expensive relative to its results gives back some of that premium over weeks or months, even while the company keeps executing. Revenue grows, the share price doesn't, and the valuation multiple shrinks. That's what the chart looks like to me from late August onward. The risk with this view is that a "time correction" and "the market is quietly pricing in a real problem" can look identical on a chart until the next earnings report shows which one it was.
Where the Valuation Sits Now
| Signal | Reading |
|---|---|
| Price (Oct 5 close) | $411.81 |
| Market cap | ~$33.5B |
| Trailing P/E | ~171 |
| Forward P/E | ~46 |
| Price / sales | ~10.4 |
| Price vs. moving averages | Below 50-day (~$528) and 200-day (~$496) |
| Analyst average target | ~$704–$722 (varies by source) |
A forward P/E of about 46 is still not cheap in an absolute sense. What I see is a company growing revenue in the mid-30s percent range, whose multiple has compressed a lot, while the quality of that growth (recurring revenue, a large backlog) hasn't obviously deteriorated. Price targets are a snapshot, not a promise, and they get cut quickly when sentiment turns.
The Risks I Take Seriously
- Falling knives are real. The stock is below both key moving averages and is making new lows. It can keep falling.
- Margin pressure might last longer than Q3. If component costs stay high, the Q4 recovery management expects could slip.
- Dilution and leverage. Convertible notes and higher net debt reduce flexibility.
- It's still richly valued. Even after the drop, the market expects years of strong growth. If that growth slows, the multiple could compress further.
Position Sizing: The Part That Matters More Than the Stock Pick
I'm including this because I think how much you put into a stock matters at least as much as which stock you pick. You can be right about a company and still get hurt if the position is too big. You can also be wrong and barely notice if it's small enough.
Here's the framework I personally use for a high-risk, high-reward name like this:
- Set a ceiling first. For a stock like this, I don't let it grow beyond roughly 3–4% of my total portfolio over the long term. The ceiling comes before the buying, so enthusiasm can't set the number for me.
- Start with a fraction of the ceiling. I begin with about one fifth of my intended full position, and I build the rest in stages over weeks or months. That way I'm not betting everything that today's price is the best one I'll see.
- Decide in advance what would make me add, hold, or step back. For example, improving margins, or a weakening thesis. I don't add just because the price drops, and I don't sell just because it does.
What that looks like in numbers
Take a portfolio of 100 units (it could be $100, $10,000, or $1,000,000; the proportions are what matter):
| Step | Units of 100 |
|---|---|
| Long-term ceiling for one risky stock | 3–4 |
| Starter position (1/5 of the ceiling) | ~0.6–0.8 |
| Left to build over time, if the thesis holds | ~2.4–3.2 |
Why the cap matters: the downside math
This is the part that convinced me. If a position is a given share of your portfolio and the stock then falls 50%, here is the damage to the whole portfolio:
| Position size | If the stock falls 50% |
|---|---|
| 1% of portfolio | Portfolio down 0.5% |
| 4% of portfolio | Portfolio down 2% |
| 10% of portfolio | Portfolio down 5% |
| 25% of portfolio | Portfolio down 12.5% |
AXON has already fallen about 46% from its high. At a 3–4% weight, a further halving is a bruise. At 25% it's a wound. A small size lets me stay calm, stay in the game, and keep thinking clearly if the stock keeps moving against me, and that matters because the worst investing decisions tend to be made when a position is too big to ignore.
Where I Land
I find this pullback interesting: strong growth, a large contracted backlog, and a multiple that has come down a lot, which fits my read of a time correction. I also can't ignore the margin pressure, the financing questions, and a chart that hasn't yet shown a bottom. That's exactly the kind of situation where I'd rather be small and early than large and certain. For me that means a starter position of about one fifth of a position that I won't let grow past 3–4% of my portfolio. For you, the right answer may be different, or may be nothing at all.
Disclosure: not financial advice
This article is for educational purposes only. It describes my own views and habits. It is not financial, investment, legal, or tax advice and not a recommendation to buy, sell, or hold AXON or any security. I may hold or trade the securities mentioned. Data comes from third-party sources and may be incomplete or delayed. Stocks can lose value, and you can lose money. Do your own research and consider speaking with a licensed financial advisor.
FAQ
Is this financial advice?
No. It's education and my own perspective. It says nothing about what is right for your portfolio.
Why did Axon stock fall?
A sharp reaction to Q2 earnings (margin worries from higher memory costs), a very high starting valuation, and scrutiny of a new $1.0 billion zero-coupon convertible note deal, followed by a steady slide through September.
What is position sizing?
Deciding how much of your portfolio to put into one investment, so a wrong call can't do outsized damage.
What does scaling into a position mean?
Buying a portion now (for example one fifth of your intended amount) and adding the rest over time, instead of committing everything at a single price.