Cloud And AI Integration Will Shape US Security Landscape

Key Takeaways

• Expanding adoption in public, private, and critical infrastructure sectors, coupled with regulatory support, is driving market growth and recurring revenue opportunities.
  
• Continuous AI-driven platform innovation and scalable operations are improving margins, supporting upselling, and positioning the company for accelerated earnings growth.
  
• SoundThinking faces revenue volatility due to municipal contract risk, public scrutiny, budget constraints, competition, and slow progress in diversifying beyond its main product.

Catalysts

A public safety technology company, provides data-driven solutions and strategic advisory services for law enforcement, security teams, and civic leadership.

• Heightened public and private sector demand for advanced security solutions-exemplified by expanding deployments in U.S. cities (e.g., New Orleans) and reference wins from critical infrastructure (utility substations, embassies) and private enterprises-points to a growing total addressable market and increasing recurring revenue.
  
• Continuous innovation and integration of AI, cloud, and IoT (e.g., drone-as-first-responder, AI-driven PlateRanger/CrimeTracer integrations, perimeter-based sniper detection) enhances platform value, supports upselling/cross-selling, and is likely to drive higher average revenue per account while improving gross margins through operational efficiencies.
  
• Strong pipeline visibility (over $37 million for 2025 and growing international interest) and resilient customer retention provide a high degree of revenue predictability and support future growth, even as the company absorbs the loss of major contracts like Chicago.
  
• Expansion into new verticals (healthcare/campuses via SafePointe, utility/critical infrastructure, international cities) and anticipated regulatory tailwinds (e.g., California AB 2975 mandating weapon screening) broaden SoundThinking's addressable market and create multiple avenues for revenue acceleration.
  
• Increasing operational leverage, with flat or declining OpEx as a percentage of revenue due to scalable software and AI investments, sets the stage for margin expansion and accelerated earnings growth as new contracts and products come online.

SoundThinking Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SoundThinking's revenue will grow by 9.5% annually over the next 3 years.
• Analysts are not forecasting that SoundThinking will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate SoundThinking's profit margin will increase from -9.7% to the average US Software industry of 13.1% in 3 years.
• If SoundThinking's profit margin were to converge on the industry average, you could expect earnings to reach $17.9 million (and earnings per share of $1.37) by about September 2028, up from $-10.1 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 20.0x on those 2028 earnings, up from -14.9x today. This future PE is lower than the current PE for the US Software industry at 36.6x.
• Analysts expect the number of shares outstanding to grow by 1.61% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.51%, as per the Simply Wall St company report.

SoundThinking Future Earnings Per Share Growth

Risks

• Heavy reliance on municipal contracts exposes SoundThinking to delays, renewals, and potential nonrenewals, as seen with Puerto Rico's bureaucratic RFP process and Chicago's contract loss-this creates significant revenue volatility and impacts earnings predictability.
  
• Persistent political and public scrutiny of law enforcement technology, especially with the mention of New York's political landscape and historical references to "defund the police," could result in reduced government support or adverse legislation, decreasing future demand and impacting long-term revenue growth.
  
• Budget constraints in municipal and government sectors, referenced by booking delays and deal timing issues, can lead to postponed or downsized contracts, directly pressuring near
• and long-term revenue and potentially limiting margin expansion.
  
• Increased competition from other providers, such as Flock and innovations in AI-driven solutions, raises the risk that SoundThinking's offerings may become less differentiated, which could erode pricing power, lower gross and net margins, and threaten future earnings growth.
  
• Despite investments in new product lines like SafePointe and CrimeTracer, SoundThinking's ability to accelerate diversification beyond ShotSpotter remains unproven; any failure to achieve product adoption or integration could maintain high product concentration risk and suppress revenue/margin growth.

Valuation

• The analysts have a consensus price target of $21.5 for SoundThinking 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 $30.0, and the most bearish reporting a price target of just $19.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $136.4 million, earnings will come to $17.9 million, and it would be trading on a PE ratio of 20.0x, assuming you use a discount rate of 8.5%.
• Given the current share price of $11.81, the analyst price target of $21.5 is 45.1% 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.