On Wednesday, Roth/MKM adjusted its outlook on SoundThinking (NASDAQ:SSTI), a tech company specializing in software and security services. The firm reduced the price target to $30 from the previous $50 while maintaining a Buy rating on the stock. This revision comes in the wake of Chicago's decision, announced Tuesday, not to renew its expiring contract with SoundThinking, which is set to lapse on February 16. The city plans to decommission the service later in the year, on September 22.
The contract with Chicago has been significant for SoundThinking, contributing approximately $8 million annually to the company's revenue. Despite this setback, Roth/MKM's stance remains optimistic due to the company's broader growth trajectory. SoundThinking is on track to expand its service coverage by over 140 square miles in 2023, indicating an increasing demand for its offerings beyond the Chicago market.
The firm's confidence is further bolstered by SoundThinking's introduction of new software and security screening products, which are expected to gain traction in the market. These new ventures, coupled with what Roth/MKM describes as "strength outside of Chicago accelerating," suggest potential for the company's continued growth despite the loss of the Chicago contract.
Roth/MKM also notes that SoundThinking's valuation has already experienced a significant pullback, implying that the current market price may not fully reflect the company's growth prospects and the value of its upcoming product offerings. The lowered price target to $30 reflects a recalibration in light of the contract loss while still endorsing the stock's investment potential.
In summary, despite the contract setback with the city of Chicago, Roth/MKM reaffirms its positive outlook on SoundThinking's future, emphasizing the company's expansion plans and new product lines as key drivers for growth. The revised price target aims to account for the immediate financial impact of losing one of the company's largest customers while considering the broader context of SoundThinking's market position and product development initiatives.
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