I Will Deploy AI And V-XR To Expand Global Reach

Key Takeaways

• Strategic international expansion and strong engagements with government and military clients bolster VirTra's revenue growth potential.
  
• Investment in AI and enhanced manufacturing capabilities enable efficient production and delivery, driving revenue and operational success.
  
• Financial performance is vulnerable due to government funding delays and international market volatility, impacting revenue growth, profitability, and market expansion potential.

Catalysts

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

• VirTra has strategically bolstered its sales pipeline and expanded international contracts, enhancing its potential for revenue growth as market conditions stabilize. The company’s strong engagement with government and military customers further supports this outlook.
  
• The rollout and adoption of the V-XR platform, including its first sale in Canada, position VirTra for future revenue growth. The flexible training options and compatibility with various XR headsets are likely to attract budget-conscious agencies, expanding the company’s customer base.
  
• VirTra's investment in AI technology to accelerate content production significantly increases its capability to scale its scenario library. This efficiency will likely boost revenue through faster delivery and more extensive offerings to customers.
  
• Improved manufacturing capabilities, including a state-of-the-art production facility and ERP implementation, arm VirTra with the ability to handle large-scale contracts effectively. This operational strength enhances its capacity to convert backlog into revenue and impacts earnings positively.
  
• The company's strategic initiatives to enhance sales efficiency and expand market presence are expected to shorten sales cycles and optimize revenue opportunities, potentially improving net margins and shareholder value.

VirTra Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming VirTra's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 5.2% today to 4.8% in 3 years time.
• Analysts expect earnings to reach $1.5 million (and earnings per share of $0.13) by about May 2028, up from $1.4 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 70.7x on those 2028 earnings, up from 37.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 31.7x.
• Analysts expect the number of shares outstanding to grow by 1.35% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.48%, as per the Simply Wall St company report.

VirTra Future Earnings Per Share Growth

Risks

• Persistent funding delays at the federal level and unpredictable government funding cycles could hinder order conversions and revenue recognition, impacting overall revenue growth.
  
• The decrease in revenue from $38.8 million in 2023 to $26.4 million in 2024 highlights a significant impact on financial performance due to federal budget distribution pauses, risking net margins and earnings.
  
• Declining revenue and an increase in net operating expenses from $17 million to $17.4 million could pressure operating margins, eroding profitability.
  
• International revenue fell from $6.5 million in 2023 to $3.1 million in 2024, reflecting potential volatility and risk in the international market segment, which could affect overall revenue diversification and stability.
  
• The competitive landscape and technological challenges, particularly with the V-XR platform and XR headsets, may limit market expansion and delay revenue from emerging market segments, impacting long-term business 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 $32.4 million, earnings will come to $1.5 million, and it would be trading on a PE ratio of 70.7x, assuming you use a discount rate of 6.5%.
• Given the current share price of $4.57, the analyst price target of $8.25 is 44.6% 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.