There is something special about seeing events live, whether you like sports, concerts, or shows. I recently visited T-Mobile Arena in Las Vegas to watch the Vegas Golden Knights take on the Detroit Red Wings, and there was something different about getting into the arena. I'll explain below.
A large part of any event is security. Sadly, mass shootings have skyrocketed over the past 20 years. New York City has also seen a surge in violence on the subways, so it is turning to this company to help keep people safe.
Whatever our personal experience, we are all at least indirectly affected by unfortunate incidents when we go through tight security and long lines. However, traditional metal detector security has problems -- problems that Evolv Technologies (EVLV -1.46%) is trying to solve using artificial intelligence (AI) technology.
What is Evolv Technologies?
Evolv Technologies designs and sells scanners that use artificial intelligence to detect guns and other weapons based on shape and other unique characteristics. The technology allows people to walk into a venue without waiting to be scanned in a single-file line. Wallets and keys don't set off the alarm like they do for a metal detector. It also helps to alleviate giant crowds waiting to enter a venue, which could be targeted.
This was my experience at T-Mobile Arena. There were security personnel as we walked in, but I walked through without emptying my pockets. I noticed the name on the device was a stock I own, Evolv. This isn't a unique experience. There are over 4,500 Evolv machines in service as of the end of 2023.
Data source: Evolv Technologies. Chart by author.
It works like this. Security holds devices similar to tablets on the sidelines of people entering. If a gun or other weapon is detected, it shows on the device and identifies where it is on the person (pocket, backpack, etc.). Security then asks the patron to step aside and perform the next steps. The devices are used at schools and hospitals as well. Evolv reports that 40% of its business comes from schools, 10% to 15% from hospitals, 10% to 15% from professional sports, and the rest from amusement parks, tourist attractions, places of worship, and workplaces.
Is Evolv stock a buy?
Evolv is growing customer numbers rapidly. From 2021 to 2023, it went from 200 schools to 800, from 30 hospitals to 300, and from 10 professional sports teams to 40. New York City's recent announcement that it was going to use the devices could be a significant catalyst for the stock, and other municipalities could follow.
The revenue model is partially recurring. After buying the machines, the customer pays for a subscription to the software. As shown below, revenue has skyrocketed due to growing adoption.
EVLV Revenue (TTM) data by YCharts.
Revenue growth is excellent, but annual recurring revenue (ARR) will be essential for long-term success. ARR is significant because it means Evolv will continue to make money once the market is saturated. The company reported an impressive 120% ARR growth in 2023, reaching $75 million.
This company has a ton to like. However, Evolv is still a relatively small company with a market cap of $700 million. It is in its high-growth phase, so it isn't profitable and carries increased risks. It's not a stock in which to invest your entire portfolio. But, in my view, it is worth a speculative position.
The stock trades at a price-to-sales ratio (P/S) of 9, which is reasonable for a growing tech company. It is a technology that is needed and innovative, and a valuable tool many are adopting as part of a comprehensive security plan. No one thing will fix the problem. It's time for an "all on deck" approach, and Evolv is one element.
