Renewed Government Funding And XR Trends Will Expand Market Reach

Key Takeaways

• Expanding recurring, high-margin revenue through strategic contracts, XR adoption, and innovation positions VirTra for greater earnings stability and margin improvement.
  
• Partnerships and integration with leading simulation platforms drive international and defense market growth, reinforcing competitive strength and operating leverage.
  
• Funding delays, increased competition, margin pressure, and technological disruption threaten VirTra's growth, profitability, and ability to maintain market share in training solutions.

Catalysts

Provides use of force training and firearms training simulators for the law enforcement, military, and commercial markets worldwide.

• The reopening and expansion of government grant programs for law enforcement and increasing international activity, coupled with renewed agency funding cycles, are expected to unlock pent-up demand for advanced simulation training in the coming quarters, directly boosting near-term and long-term revenue growth.
  
• Growing mainstream acceptance and adoption of immersive extended reality (XR), evidenced by heightened customer interest in VirTra's V-XR platform and its certified content library, position VirTra to capture diversified recurring revenue streams from law enforcement, healthcare, and academic markets-improving both gross margins and revenue predictability.
  
• Transition toward multi-year, subscription-based STEP contracts-with high renewal rates above 95% and early renewals for access to updated technology-expands recurring, high-margin revenue, thus supporting improved net margins and long-term earnings stability.
  
• Strategic investments in product innovation, manufacturing efficiency, and reliability have reinforced VirTra's reputation for quality and durability, securing repeat business, competitive differentiation, and pricing power that can enhance gross margins and protect against margin compression.
  
• Collaboration with major industry platforms (such as Bohemia Interactive's VBS and advanced federal programs like IVAS), and the ability to natively integrate with leading battle simulation technologies, broadens VirTra's addressable market internationally and in defense, supporting sustained revenue growth and improved operating leverage as industry adoption accelerates.

VirTra Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VirTra's revenue will grow by 11.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.2% today to 23.4% in 3 years time.
• Analysts expect earnings to reach $8.8 million (and earnings per share of $0.77) by about August 2028, up from $1.1 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.9x on those 2028 earnings, down from 54.0x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 33.5x.
• Analysts expect the number of shares outstanding to grow by 0.17% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.86%, as per the Simply Wall St company report.

VirTra Future Earnings Per Share Growth

Risks

• Ongoing federal and international funding delays for law enforcement and military agencies create uncertainty in procurement cycles, decreasing the predictability and growth rate of VirTra's revenue, and may suppress near-term and long-term earnings if budget freezes persist.
  
• Declining gross margins-from 91% to 69% year-over-year-reflect a shift toward lower-margin capital sales and away from higher-margin service/STEP revenues, which may pressure profitability and net margins if the mix does not rebalance or high-margin software subscriptions do not scale as anticipated.
  
• Increasing competition in the immersive training market (notably from larger, well-funded technology players such as Android and Meta in augmented reality initiatives) could challenge VirTra's pricing power, erode market share, and compress gross and net margins over time.
  
• Heavy dependence on government contracts and grant-driven funding introduces significant revenue volatility risk; shifts in public sentiment, political priorities, or regulatory requirements could limit funding availability and dampen VirTra's long-term growth prospects.
  
• Technological disruption from alternative training solutions (such as AI-driven mobile platforms or next-generation VR/AR approaches) or unfavorable international export regulations could reduce the competitiveness of VirTra's offerings, limiting expansion into new markets and impacting top-line revenue growth.

Valuation

• The analysts have a consensus price target of $8.25 for VirTra based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $9.5, and the most bearish reporting a price target of just $7.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $37.7 million, earnings will come to $8.8 million, and it would be trading on a PE ratio of 12.9x, assuming you use a discount rate of 7.9%.
• Given the current share price of $5.44, the analyst price target of $8.25 is 34.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.