Shares of Meta Platforms(NASDAQ: META) and Axon Enterprise(NASDAQ: AXON) over the last five years soared 212% and 730%, respectively. By comparison, the S&P 500(SNPINDEX: ^GSPC) returned just 91% during the same period. Both companies are stock split candidates after that share price appreciation, but whether either stock splits matters very little in the long run.
What actually matters is that Meta Platforms and Axon have strong competitive positions in their industries. They have proven their ability to generate market-beating returns, and that outperformance could continue as they invest in artificial intelligence products. Indeed, Wall Street is predominately bullish on both companies.
- Among the 71 analysts that follow Meta Platforms, 85% rate the stock a buy.
- Among the 15 analysts that follow Axon Enterprise, 93% rate the stock a buy.
Here's what investors should know about these potential stock-split stocks.
1. Meta Platforms
Meta Platforms owns three of the four most popular social media networks on the planet in Facebook, Instagram, and WhatsApp. The company also owns Messenger, the seventh-most popular social platform. Each network has more than 1 billion monthly active users, and they collectively draw over 3 billion unique visitors each day.
In total, Meta engages about 40% of the global population on a daily basis, and each interaction creates data that lets advertisers put relevant content in front of users. That value proposition has made Meta the second-largest ad tech company in the world behind Alphabet's Google. And the company is leaning on artificial intelligence (AI) to further deepen engagement and improve campaign outcomes for advertisers.
Meta Platforms reported solid financial results in the third quarter, beating estimates on the top and bottom lines. Revenue increased 19% to $40.6 billion and GAAP net income soared 37% to $6.03 per diluted share. CEO Mark Zuckerberg said, "We had a good quarter drive by AI progress across our apps and business."
Zuckerberg specifically mentioned that user engagement with Facebook and Instagram increased 8% and 6%, respectively, year to date due to AI-driven feed and video recommendations. He also highlighted momentum with the company's new conversational assistant Meta AI, a product Zuckerberg believes will be "the most used AI assistant by the end of the year."
With that in mind, Wall Street expects Meta Platforms' earnings to increase at 23% annually over the next three years. That consensus estimate makes the current valuation of 29 times earnings look reasonable. Investors should feel comfortable buying a small position in this stock today, whether or not the company splits its stock in the near future.
2. Axon Enterprise
Axon is a public safety company with clients that span law enforcement, federal agencies, and commercial organizations. While best known for conducted energy devices sold under the brand name Taser, Axon also sells sensors like body-worn cameras and in-car dash cameras, which integrate with its ecosystem of software for digital evidence management, report writing, and real-time operations.
Axon is the market leader in conducted energy devices. Indeed, the brand name Taser is synonymous with the broader product category. Consequently, Axon over the years has built customer relationships with a large number of U.S. law enforcement agencies, both state and local. Those relationships have helped the company secure a leadership position in body-worn cameras and digital evidence management software.
Axon recently introduced a generative AI service called Draft One, which extracts video from body-worn cameras to draft police reports. CEO Rick Smith told analysts, "Our customers' response to Draft One is better than anything I've seen." He expects Axon to be a leader in generative AI for public safety use cases.
Axon reported solid financial results in the second quarter. Revenue increased 34% to $504 million, while non-GAAP net income ticked up 9% to $1.20 per dilute share. The only concerning number was the 41% increase in operating expenses, primarily due to higher stock-based compensation. Shareholders should watch that situation. Axon still has 3.6 million shares available under its equity incentive program.
Wall Street expects Axon's adjusted earnings to increase at 21% annually through 2025. That consensus estimate makes the current valuation of 98 times adjusted earnings look rather expensive. Axon is a great company with compelling growth prospects, but I would personally wait for a better entry point before purchasing shares, despite the stock being highly rated by Wall Street analysts.
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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
*Stock Advisor returns as of October 28, 2024
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Trevor Jennewine has positions in Axon Enterprise. The Motley Fool has positions in and recommends Alphabet, Axon Enterprise, and Meta Platforms. The Motley Fool has a disclosure policy.
