Blue City Expansion And Lidar Integration Will Shape ITS Future

Key Takeaways

• Expansion into Intelligent Transportation Systems and collaborations with heavy equipment manufacturers enhance revenue potential and operational efficiencies.
  
• Focus on integrated software and advanced lidar hardware drives growth in high-margin solutions and expands market opportunities.
  
• Intense competition and market uncertainties pose risks to revenue growth, net margins, and financial stability, with potential impacts from legal expenses and geopolitical factors.

Catalysts

Provides lidar sensors for the automotive, industrial, robotics, and smart infrastructure industries in Americas, the Asia-Pacific, Europe, the Middle East, and Africa.

• Ouster is tapping into the massive Intelligent Transportation Systems (ITS) market with their Blue City traffic management solution, which could drive significant revenue growth as they expand deployments across the US, Europe, and Asia. This is expected to positively impact revenue.
  
• The company's collaboration with major heavy equipment manufacturers like John Deere to integrate lidar solutions for automation can enhance operational efficiency and grow adoption in sectors struggling with labor shortages, potentially boosting earnings.
  
• Ouster's focus on software-attached bookings, which increased by over 60% in 2024, indicates future growth in high-margin software solutions, likely resulting in improved net margins compared to hardware-only sales.
  
• Significant advancements in Ouster's digital lidar hardware, such as the next-generation L4 sensors and Chronos custom silicon, are expected to double the addressable market and improve gross margins through enhanced performance and reliability.
  
• Ouster's strategic efforts to transform their product portfolio in 2025, including new hardware and software features, are poised to maintain strong revenue growth and support their long-term profitability goals.

Ouster Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Ouster's revenue will grow by 38.7% annually over the next 3 years.
• Analysts are not forecasting that Ouster will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Ouster's profit margin will increase from -87.3% to the average US Electronic industry of 8.3% in 3 years.
• If Ouster's profit margin were to converge on the industry average, you could expect earnings to reach $24.7 million (and earnings per share of $0.38) by about May 2028, up from $-97.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.0x on those 2028 earnings, up from -4.3x today. This future PE is greater than the current PE for the US Electronic industry at 20.6x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.41%, as per the Simply Wall St company report.

Ouster Future Earnings Per Share Growth

Risks

• The company's reliance on specific market predictions and forward-looking statements creates a risk that actual financial performance could differ materially due to market uncertainties, which could impact revenue projections and financial outlook.
  
• The intense competition from Chinese lidar companies such as HESAI and Robosense, as well as established legacy technologies in the smart infrastructure space, could pressure Ouster's pricing and market share, potentially affecting net margins and revenue growth.
  
• Variability in gross margins due to customer shipment schedules, product mix, and other factors could lead to fluctuations in quarterly financial results, impacting earnings consistency and predictability.
  
• Litigation expenses and fluctuating operating costs, including R&D project spending, add uncertainty to future operating expenses and could affect net margins adversely.
  
• The rapidly evolving tariff environment and geopolitical risks could disrupt supply chains or customer base strategies, posing challenges to maintaining revenue growth and managing costs effectively.

Valuation

• The analysts have a consensus price target of $13.8 for Ouster 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 $17.0, and the most bearish reporting a price target of just $11.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $296.6 million, earnings will come to $24.7 million, and it would be trading on a PE ratio of 45.0x, assuming you use a discount rate of 7.4%.
• Given the current share price of $7.72, the analyst price target of $13.8 is 44.1% 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.