Shares of law enforcement technology company Axon Enterprise (NASDAQ:AXON) fell 10% on Tuesday, and surprisingly, there isn’t a good explanation for the drop. There weren’t any new press releases, filings, or comments from analysts. This commentary doesn’t feel satisfying; we feel like there always has to be something behind a big move like this. But sometimes the stock market is just this way.
Unlike many other investments, the market is volatile. For example, it would be crazy to see home values fall 10% in a day. But stocks can, and frequently do, fall unexpectedly. Some say this is the risk that comes with investing in stocks. But I beg to differ. Axon’s drop today merely illustrates the volatility that comes with stocks. Consider that Axon’s stock is still up over 40% in 2021, and there’s not a real satisfying explanation for that much of a rise, either. Volatility works both ways.
Risk is different from volatility. To me, risk is the chance a stock falls and stays below my cost basis for years. For a stock like Axon to stay down that long, its business would need to start struggling. But this company isn’t showing any signs of being challenged. In the third quarter of 2020, it had growth across the board. And it even invested some of its cash into starting to consolidate some of its operations into one place to better meet surging demand for its Tasers, body cameras, and software.
Axon’s fourth-quarter results will be announced on Feb. 25. At that time, management expects to report quarterly revenue of $175 million to $185 million, up modestly from the $172 million it reported in the fourth quarter last year. There’s no reason to think it won’t hit guidance, and keeping this in mind will keep you from selling a good company like Axon simply because it had a bad day.