On Tuesday, B.Riley initiated coverage on Red Violet (NASDAQ: RDVT), assigning a Buy rating and establishing a 12-month price target of $25. The firm highlighted Red Violet's position as an emerging force in identity intelligence, led by a seasoned team with a track record of developing companies with successful exits.
Red Violet's proprietary CORE platform is central to its operations, offering advanced analytics and a comprehensive data asset to integrate various data points. This integration facilitates cohesive and actionable identity intelligence that serves to reduce fraud and enhance commerce.
Despite a modest 2023 revenue base of $60 million when compared to larger peers, Red Violet caters to a significant segment of major identity players in the U.S. market. The company boasts proprietary technology and robust analytical capabilities that enable real-time identification and location of individuals, businesses, assets, and their connections.
The company's revenue structure is characterized by high-margin recurring contractual revenue, which made up 79% of its sales in 2023, with a notable 92% gross revenue retention rate. The remaining 21% of revenue, which is usage-based and often comes with contractual minimums, also tends to recur.
B.Riley noted the company's fixed-cost model and subscription-based revenue approach as key factors underpinning Red Violet's potential for sustained growth and profitability, with significant operating leverage anticipated.
Management at Red Violet has indicated that achieving $100 million in annual revenue would position the company to reach an approximate 40% EBITDA margin. B.Riley views the company as an under-the-radar player in identity verification and data fusion, noting that the stock has not received analyst coverage despite its healthy growth and improving profitability, with sales increasing by 13% in 2023 and an EBITDA margin of 27%.
Finally, the firm pointed out that Red Violet's shares are trading at what they consider to be highly attractive EV/EBITDA multiples of 11.5x for 2024 and 9.5x for 2025, which are below the peer group medians of 25x and 19x, respectively. This valuation is deemed favorable given Red Violet's growth and profitability profile.
InvestingPro Insights
Red Violet's financial health and growth potential are further illuminated by real-time data and insights from InvestingPro. The company holds a market capitalization of $249.12 million, with a P/E ratio standing at 18.41, reflecting investor confidence in its earnings capacity. A robust gross profit margin of 78.29% underscores the company's operational efficiency and its ability to maintain profitability. Moreover, the revenue growth of 12.91% over the last twelve months signals a solid trajectory in expanding its market presence.
InvestingPro Tips suggest that Red Violet's financial prudence is evident, as it holds more cash than debt, ensuring a strong balance sheet. Additionally, the company's liquid assets surpass its short-term obligations, highlighting a sound liquidity position. Analysts contributing to InvestingPro have further optimism, predicting that Red Violet will maintain profitability this year, a sentiment that is reinforced by the company's positive net income over the last twelve months.
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