Global Urbanization And Security Concerns Will Fuel Simulation Expansion

Key Takeaways

• Rapid expansion in federal, military, and allied markets boosts procurement cycles and diversifies revenue while regulatory shifts increase mandatory adoption across new geographies.
  
• Transition toward multi-year commitments and high renewal rates creates a stable, SaaS-like recurring revenue base, supporting margin growth and premium market positioning.
  
• Revenue growth faces uncertainty from public scrutiny, shifting government budgets, technology disruption, concentrated contracts, and mounting regulatory and reputational pressures.

Catalysts

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

• Analyst consensus expects strong pipeline and government engagement to drive healthy growth, but this could be materially understated; with grants and federal programs now reopening after a lengthy freeze and VirTra playing a leading role in DC advocacy, there is the potential for a swift, pronounced snapback in procurement cycles, delivering a surge in near-term bookings and outsized revenue acceleration.
  
• While analysts broadly view recurring STEP and service revenues as increasingly stable, the reality is even more compelling-recent contract structure changes to 3-year commitments and a 95%+ early renewal rate are establishing a high-visibility, SaaS-like revenue base that could drive sustained margin expansion and support significant earnings multiple re-rating.
  
• The integration of VirTra's training platforms with leading global simulation engines like Bohemia's VBS, now adopted by the U.S. Army and spread to over 130 countries, positions VirTra to quickly penetrate military and allied defense budgets worldwide, turbocharging international revenue and diversifying away from domestic procurement risk.
  
• Heightened public demand for police accountability and new legal requirements for simulation-based training in multiple U.S. states are creating a regulatory "pull" for VirTra's products, opening the door to mandatory adoption at the municipal and state level-offering highly durable, non-discretionary revenue streams and geographically broadening the customer base.
  
• VirTra's continued R&D success and recognized leadership in XR and certified training for emerging verticals (such as healthcare and education) allow it to capture share from general digital transformation spend, with its proprietary content library, integration with XR, and emphasis on data-driven training outcomes creating strong long-term pricing power and supporting premium gross margins.

VirTra Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on VirTra compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming VirTra's revenue will grow by 16.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 4.2% today to 23.1% in 3 years time.
• The bullish analysts expect earnings to reach $9.8 million (and earnings per share of $0.85) by about September 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 price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 13.4x on those 2028 earnings, down from 56.7x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.4x.
• 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 7.88%, as per the Simply Wall St company report.

VirTra Future Earnings Per Share Growth

Risks

• Heightened public scrutiny over police militarization and public opposition to law enforcement training budgets could restrict demand for VirTra's simulation products, posing persistent headwinds to top-line revenue growth as agency budgets stagnate or decline.
  
• Shifts in government spending priorities-such as reallocating funds from defense and law enforcement to social programs during periods of fiscal tightening-have already resulted in federal and international funding delays, which continue to create uncertainty in contract flow and make future earnings less predictable.
  
• VirTra's over-reliance on a concentrated set of government and law enforcement contracts leaves its revenue stream and cash flow highly vulnerable to abrupt political or budgetary changes, as evidenced by the ongoing procurement delays and customer-driven deferrals that have led to sequential booking declines.
  
• The simulation and training technology space is experiencing rapid innovation, particularly from tech companies advancing in AR, VR, and cloud-based solutions; VirTra's current pace of platform development may not keep up, risking product obsolescence and gross margin compression over the long term.
  
• Increasing regulatory scrutiny on the ethical use of law enforcement and defense training technologies could expose VirTra to higher compliance costs and damage to reputation, potentially resulting in reduced demand, compressed net margins, and greater barriers to international expansion.

Valuation

• The assumed bullish price target for VirTra is $9.5, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of VirTra's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• 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 bullish analysts, you'd need to believe that by 2028, revenues will be $42.2 million, earnings will come to $9.8 million, and it would be trading on a PE ratio of 13.4x, assuming you use a discount rate of 7.9%.
• Given the current share price of $5.71, the bullish analyst price target of $9.5 is 39.9% 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.