Evolv Technologies Holdings, Inc. (EVLV): A Bull Case Theory

We came across a bullish thesis on Evolv Technologies Holdings, Inc. (EVLV) on Substack by Stephen. In this article, we will summarize the bulls’ thesis on EVLV. Evolv Technologies Holdings, Inc. (EVLV)'s share was trading at $3.02 as of March 28^th.

Evolv Technologies is emerging as a high-quality business with a strong competitive advantage in security screening solutions. The company’s core product, Evolv Express™, uses radio frequency (RF) electromagnetic sensors and AI-driven algorithms to detect threats in real time. Unlike traditional metal detectors, Evolv’s system allows for much faster screening by eliminating the need for people to empty their pockets, while also pinpointing the location of potential threats on a person’s body. This breakthrough has significantly improved throughput at venues such as stadiums, airports, and event centers, unlocking value by reducing wait times and enhancing safety. The increased efficiency benefits businesses by allowing more time for revenue-generating activities such as food and merchandise sales. Evolv’s solution is also expanding security use cases in locations where traditional metal detectors would be impractical, such as schools, hospitals, and public transportation hubs.

The company has already gained credibility among high-profile clients, including Disney, major sports arenas, and the Olympics. Its market position was recently challenged by an FTC inquiry into past marketing claims, which resulted in a settlement allowing a small subset of customers in the K-12 segment to cancel contracts. However, as of early 2025, no customers had exercised their cancellation rights, reinforcing the stickiness of the product. Evolv’s visibility continues to grow as new installations frequently generate positive media coverage, effectively serving as free advertising that drives further adoption. This organic word-of-mouth marketing effect has been noted in other high-quality businesses and is a sign of strong product-market fit.

Evolv is undergoing a transformation in its business model from a mix of hardware sales and subscriptions to a hybrid approach that prioritizes a pure subscription and outsourced licensing model. This shift is expected to drive higher margins over time. While the transition has temporarily impacted revenue growth, the company’s high-margin recurring revenue base continues to expand. The addition of 465 subscriptions in Q3 2024 and 470 in Q4 2024 suggests strong momentum, with an annualized subscription growth rate of approximately 35% year-over-year. Evolv’s newly introduced bag-scanning product, Evolv eXpedite™, represents an additional growth avenue, though its long-term impact remains to be seen.

From a valuation perspective, Evolv presents an attractive opportunity. With trailing twelve-month revenue of $89.2M and a market cap of $556.9M, the company would need to grow revenue at an average of 23% per year over the next decade to justify a 20% annualized return for investors. This target appears feasible given the company’s high-margin subscription model, cost-reduction initiatives, and expanding market penetration. If the company achieves higher free cash flow margins or commands a premium valuation multiple, returns could exceed expectations. While recent revenue growth has been below this threshold in three of the last four quarters, this is largely due to the transition away from hardware sales, which previously provided a one-time boost to revenue but with lower margins. As the subscription business scales, overall revenue growth is likely to re-accelerate, accompanied by margin expansion.

Evolv’s unit economics are also compelling. A rough internal rate of return (IRR) analysis suggests that both the subscription and leasing models could yield returns above 20%. Factors such as customer acquisition cost (CAC) efficiencies, cost reductions in hardware, and increasing gross margins (historically around 80%) could further improve unit economics. Additionally, the ability to repurpose hardware in the subscription model mitigates potential downside from customer churn. Given the increasing adoption of Evolv’s solutions, strong customer retention, and the potential for further penetration in underdeveloped verticals like education and healthcare, the long-term outlook is highly promising.

One factor that could significantly impact the stock’s trajectory is the presence of legacy shareholder and founder contingent shares. There are significant earn-out shares set to expire in 2026, tied to stock price thresholds ranging from $12.50 to $17.50, representing a potential dilution event. However, this also provides strong incentives for the founding team and legacy investors to maximize shareholder value in the coming years. If the company’s execution aligns with its potential, achieving these share price targets could lead to a substantial upside from current levels.

Evolv represents an asymmetric investment opportunity with multiple catalysts for growth. The company is positioned at the forefront of a rapidly expanding market for intelligent security screening, with strong customer adoption, high-margin recurring revenue, and improving unit economics. While the business model transition has created near-term revenue headwinds, the long-term trajectory remains compelling. With continued execution, Evolv has the potential to deliver market-beating returns, particularly as its scalable subscription model gains traction. Investors willing to ride out short-term volatility could be rewarded with significant appreciation as the company continues to disrupt the security industry.

Evolv Technologies Holdings, Inc. (EVLV) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 19 hedge fund portfolios held EVLV at the end of the fourth quarter which was 18 in the previous quarter. While we acknowledge the risk and potential of EVLV as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than EVLV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.