Tales of Unexpected Losses: AXON, TREX, WRBY
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We have tales of unexpected losses from last week's earnings. You're listening to Motley Fool Money.
Welcome, Fools. I'm your host, Tim Byers. And with me are longtime Fools, Jason Hall and Emily Flippen, another podcast host. Friends, how are we today? Are you both fully caffeinated and enjoying the possibility of a reopening of the federal government?
I mean, enjoying is one way to put it, but we're not going to really talk about it here because it's still so early in the story. It's a thing that's going on.
It is a thing that is going on. We hope the market is up. There is hope. If you haven't followed it, there is hope for the ending of the government shutdown. Lots of things that political pundits will tell you about. We're going to tell you about some stocks. Let's start with Axon Enterprise, Emily. We're looking at three earnings reports that... kind of surprised and disappointed. Axon was one of them. What we want to do is break down what the street didn't like, what we think, and whether we think now is the time to buy, sell, or hold. Give me your take here, Emily. What did the street not like about the Axon report? What did you think of it?
Well, the most obvious thing is their return to operating losses for the first time in nearly four years. I actually think that's largely what led to this mentality of shoot first, ask questions later, because the headline numbers came in. And you can call it Wall Street, but I would also add algorithmic traders, all of these different pundits that are coming in and trying to evaluate this quarter, they see that operating loss and they see guidance that came in weaker than expected. And it was, oh my gosh, the growth story for Axon is over. I don't know what to make of this. But the reality is that a lot of this was expected. Some of the losses were driven by tariffs, which obviously weighed on margins.
But in my opinion, this was actually a really strong quarter. And I know that sounds contradictory or counterintuitive, but the reason they're driven to operating losses is because they're investing so heavily into their different segments that are growing exponentially. I mean, this was their, I think, seventh consecutive quarter of 30% plus revenue growth. So yeah, expenses have gone up, but they're investing in future growth. And that's what I love to see.
Yeah. It's an interesting one. The thing that I thought was super interesting here, Emily, is the effective tax rate was, I don't think I've seen this before, 113.9% is what AlphaSense reported for us here. I guess the nice thing about that is this is a very profitable very well-scaled business that just keeps scaling. But we need to talk about another one. This is one of my favorite businesses, but the market decided that they were not so happy with Trex. What happened?
I've followed Trex for about 15 years now. This is not the first time that we've seen this with Trex. I'll say this, this is the first time we've seen the stock fall 75% from the previous high in the past 15 years. But going back since 2010, Tim, I've seen the stock fall 30% 10 times. And 40% or more, about half of those, this is a very seasonal, cyclical business. And the funny thing is, kind of like you just talked about with Axon, the numbers really weren't bad for the quarter. It's all about, what are you going to do for me? That's the story. We saw a pretty solid 20-plus percent revenue growth. Margin was actually better. Profit margin dollars were better. There were some positive things there. But when you start saying things like, you know what?
Our customers, which are distributors, they're saying they're going to decline their inventory a little bit. Oh, by the way, our gross margin percent was squeezed a little bit because of one of our fastest-growing products. That product is going to continue to probably grow faster than the rest of our business. That's going to hit our bottom line. Oh, also, you know that big new factory that we're opening? Well, expenses related to that, because it's really not contributing revenue right now, but expenses related to that, they're going to hit us even more on the bottom line next year.
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