Why ShotSpotter Stock Crashed This Week

What happened

Shares of ShotSpotter (NASDAQ: SSTI) got crushed amid concerns that the company could lose business in one of its biggest markets. The gunshot detection company's stock fell 34% in the shortened trading week, according to data from S&P Global Market Intelligence.

Brandon Johnson is on track to become Chicago's new mayor after winning a runoff election April 4. Johnson had previously said that intended to end the city's use of ShotSpotter's technologies and services if elected, and investors moved out of the stock due to concerns about what that would mean for ShotSpotter's sales performance.

A chart line and arrow moving down.

Image source: Getty Images.

So what

Brandon Johnson was announced the winner of Chicago's mayoral election on April 5. Following Johnson's win, ShotSpotter saw steep sell-offs and then faced additional selling pressures amid a slew of downward stock-pricing targets and ratings revisions from analysts.

Craig-Hallum analyst Jeremy Hamblin published a note April 6 lowering his rating on the stock from buy to hold and cutting his one-year price target on the stock from $48 per share to $30 per share. Hamblin's coverage noted that the city of Chicago is ShotSpotter's second-largest customer and accounted for approximately 10% of sales last year. Hamblin sees significant risk that Johnson's administration will terminate the city's relationship with ShotSpotter and that the move could cause other cities to make similar moves.

On the other hand, coverage from Northland seemed more optimistic that ShotSpotter could potentially convince the incoming mayor to change his position given the right presentation of facts. While the firm maintained an "outperform" rating on the stock, it lowered its one-year price target from $52 per share to $45 per share.

Additionally, Lake Street's Jaeson Schmidt maintained a buy rating on the stock but lowered his price target from $44 per share to $33 per share due to concerns that Chicago could terminate its business relationship with ShotSpotter and potentially prompt other cities to follow suit.

Now what

Losing Chicago as a customer would be a significant setback for ShotSpotter, and Johnson's comments on the campaign trail suggest that he will move to end the city's business relationship with the company. On the other hand, it's still possible that the contract will be renewed. The majority of Chicago's city council and previous police chiefs have generally been in favor of using the company's services, and ShotSpotter CEO Ralph Clarke has said that he is optimistic about the two parties continuing their relationship.

SSTI PS Ratio (Forward) Chart

SSTI PS Ratio (Forward) data by YCharts

Following the big stock sell-off, ShotSpotter is valued at roughly 3.4 times this year's expected sales.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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