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William Blair upgraded ShotSpotter (NASDAQ:SSTI) to an Outperform rating after having it slotted at Market Perform.
Analyst Matthew Pfau and team note the SSTI business has increased revenue by 66% since August of 2019 while the stock is down 24%.
That has led to valuation compressing to 4X forward revenue from 9X.
The firm also believes the funding environment has improved and is better than it ever has been in ShotSpotter’s public life and the management is seen having better visibility into the business driven by less reliance on Respond deals to tier-1 cities, longer- term contracts, and product diversification.
“In addition, we believe ShotSpotter should be less impacted by a recession than many other SaaS businesses. Violent crime is increasing in many cities across the United States, and ShotSpotter is one of only a few tools cities can implement to reduce gun violence. And crime can increase during recessions. Further, the company has one of the lowest revenue attrition rates in our coverage (1% annually the past two years). “
William Blair sees greater than 60% upside to shares over the next two years based on revenue increasing at a 20% CAGR over the next three years and the forward revenue multiple increasing one turn.
Shares of SSTO rose 3.33% in early trading on Thursday.
Read why Seeking Alpha author David Zanoni is also bullish on SSTI.
