This week’s pick has one of our favorite growth stories in the market.
Cabot Profit Booster, 101
The Stock – Axon Enterprise (AAXN)
Axon Enterprise has one of our favorite growth stories in the market, as it transitions from one-time sales of electric weapons (Taser stun guns) to a recurring revenue business model based on body cameras and in-car video systems as well as a cloud video platform to store, share and analyze that video.
Axon looks set to become a much larger, steadier grower in the years ahead (total contracted revenue is now $1.13 billion, up 38% from a year ago) as more agencies in the U.S. and abroad adopt its offerings.
Technical Analysis
AAXN broke out in March 2018 (breaking out of a 10-plus-year base!) and more than doubled in just four months. The decline (to 39) and recovery (back to 75) were both sharp, and shares settled back to 50 in October. But the stock has changed character during the past three weeks, with a big earnings gap on November 8 and a continued rally through today. There is some resistance here, so you can start small with the idea of buying more if the stock continues up. Stop – 65
The Covered Call Trade
Buy Axon Enterprise (AAXN) Stock at 73, Sell January 75 Call (exp. 1/20/2020) for $2.50, or a Net Price of 70.5 or less
Static Return: 3.54%
Breakeven: 70.5
Covered Call Return (if assigned): 6.38%
Please note, the stock and options prices will be moving throughout the day, so these prices are simply an approximation of prices that you should be able to achieve. However, the important component of this equation is that the stock price paid, minus the premium received via the call sale, equals the Net Price of 70.5 or less. (in this case 73 minus 2.50 = 70.5. Or another example is you could pay 73.5 for the stock and sell the call for 3, which also equals 70.5)
Open Positions