SSTI - SoundThinking: Niche SaaS Company With Huge Operating Leverage To 40% EBITDA Margins
2024-04-03 17:25:35 ET
Summary
- SoundThinking is a cheap SaaS company at 2x sales.
- Huge operating leverage in the business can lead to 40% EBITDA margins.
- New SafePointe acquisition can lead to enhanced growth.
SoundThinking ( SSTI ), formerly known as ShotSpotter, offers a suite of SaaS offerings to make law enforcement more effective and efficient. Trading at 2x sales with a $200 million market capitalization, SoundThinking is cheap for a SaaS company with a history of 15% annual growth and huge operating leverage. The company boasts 60% gross margins which are rising as the company rolls out more ShotSpotter cities and leverages its already built out operations centers. The company has two ShotSpotter operations centers, one on the West Coast and one on the East Coast, that monitor ShotSpotter alerts and determine whether they are gunshots or not. These centers can handle much more volume so as revenue grows, the cost of sales remains fairly fixed. Management thinks it can get gross margins up to 70% over time and get to 40% EBITDA margins, as well. My model has revenue growing at 15% over the next three years and gross margins ramping to 63% with EBITDA margins growing to 32% by 2026. This would result in multiples of 1.5x sales, 4.6x EBITDA, and a 7.4x P/E ratio. Obviously, these multiples are untenable, and I think the stock can trade for 20x EBITDA then or $74 per share for 360% upside from current prices....
SoundThinking: Niche SaaS Company With Huge Operating Leverage To 40% EBITDA Margins