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Big tech giants such as Microsoft (MSFT), Meta (META), and Alphabet (GOOG) (GOOGL) are leading the artificial intelligence (AI) race with the launch of large language models (LLMs) such as ChatGPT, Gemini, and Llama. However, the rapidly expanding addressable AI market offers plenty of opportunities for smaller players to gain traction and benefit from secular tailwinds.
One such AI penny stock you can consider buying right now is Evolv Technologies (EVLV). Valued at a market cap of $602.49 million, this small-cap penny stock went public four years ago, and currently trades 71% below all-time highs.
Generally, stocks priced below $5 are considered penny stocks, and shares of Evolve Technologies currently trade at $3.86. While investing in penny stocks is a high-risk proposition, investors should note that mega-cap companies such as Apple (AAPL), Amazon (AMZN), and Nvidia (NVDA) were all part of this subset not too long ago.
So, let’s see why analysts are bullish on Evolv Technologies right now.
An Overview of Evolv Technologies
Evolv Technologies provides AI_based touchless security screening systems. Its products include Evolv Express, a touchless screening system designed to detect firearms, improvised explosive devices, and tactical knives; Evolv Insights, which provides self-serve access, insights regarding visitor flow and arrival curves, location-specific performance, and alarm statistics; and Evolv Edge, which detects non-metallic explosive devices, firearms, and tactical knives without requiring visitors to empty their pockets.
The company’s AI-powered security screening products aim to replace legacy tools, such as metal detectors. Evolv emphasized that it can scan people at speed and “process” roughly 4,000 people every hour, using ultra-low frequency electromagnetic fields and advanced sensors.
To date, Evolv has offered its solutions to 750 customers, such as schools, hospitals, and sports teams. With 4,000 units deployed, it detects more than 1,000 weapons each day.
How Did Evolv Technologies Perform in Q2 of 2024?
A key reason for the decline in share prices is the company’s decelerating revenue growth. Its sales rose 388% from $4.8 million in 2020 to $23.4 million in 2021. Sales more than doubled to $55.2 million in 2022, and were up 45.7% in 2023. However, in the last 12 months, Evolv has reported sales of $89.2 million, up 17.7% year over year.
In Q2 of 2024, Evolv reported sales of $25.5 million, up 29% year over year due to strong customer acquisition activity, expansion of its installed customer base, and growth in subscriptions of Evolv Express.
During the quarter, Evolv added 84 new customers and served more than 800 customers in 10 key vertical markets. This was the highest number of customer acquisitions for the company since Q4 of 2022. Notably, Evolv ended Q2 with annual recurring revenue (ARR) of $89 million, an increase of 64% year over year.
Evolv is shifting towards a subscription-based business model that should generate recurring sales and steady cash flow across business cycles. While the company remains unprofitable, its gross margins expanded from 38% to 58% in the last 12 months due to the adoption of its subscription model.
Evolv’s gross profit expansion allowed it to narrow its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) losses from $14 million to $8 million in the past year, as it targets reaching a positive EBITDA by Q2 of 2025.
What's the Target Price for EVLV Stock?
Evolv offers a portfolio of innovative products and has successfully expanded its customer base. However, it faces competition from peers such as Athena Security, which could limit its pricing power and lower profit margins.
Out of the five analysts covering EVLV stock, four recommend a “strong buy,” and only one recommends a “hold.”
The average target price for the AI penny stock is $5.35, indicating an upside potential of 43% from current levels.
On the date of publication, Aditya Raghunath did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
