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Red Violet Inc’s (NASDAQ:RDVT) Earnings Dropped -27.50%, Did Its Industry Show Weakness Too?

When Red Violet Inc (NASDAQ:RDVT) released its most recent earnings update (31 December 2017), I compared it against two factor: its historical earnings track record, and the performance of its industry peers on average. Being able to interpret how well Red Violet has done so far requires weighing its performance against a benchmark, rather than looking at a standalone number at a point in time. In this article, I’ve summarized the key takeaways on how I see RDVT has performed. See our latest analysis for Red Violet

Commentary On RDVT’s Past Performance

I look at the ‘latest twelve-month’ data, which either annualizes the most recent 6-month earnings update, or in some cases, the most recent annual report is already the latest available financial data. This allows me to assess different stocks on a more comparable basis, using the latest information. For Red Violet, its most recent bottom-line (trailing twelve month) is -US$21.50M, which, relative to the previous year’s level, has become more negative. Given that these values are somewhat short-term thinking, I have estimated an annualized five-year value for Red Violet’s net income, which stands at -US$21.58M. This means that, despite the fact that net income is negative, it has become less negative over the years.

NasdaqCM:RDVT Income Statement Mar 29th 18
NasdaqCM:RDVT Income Statement Mar 29th 18

We can further assess Red Violet’s loss by looking at what the industry has been experiencing over the past few years. Each year, for the last five years Red Violet’s top-line has increased by 61.99% on average, signalling that the company is in a high-growth phase with expenses racing ahead revenues, leading to annual losses. Eyeballing growth from a sector-level, the US professional services industry has been growing its average earnings by double-digit 15.00% over the past year, and a more muted 9.28% over the past half a decade. This means any uplift the industry is profiting from, Red Violet has not been able to reap as much as its industry peers.

What does this mean?

Though Red Violet’s past data is helpful, it is only one aspect of my investment thesis. With companies that are currently loss-making, it is always difficult to predict what will occur going forward, and when. The most insightful step is to examine company-specific issues Red Violet may be facing and whether management guidance has steadily been met in the past. I recommend you continue to research Red Violet to get a better picture of the stock by looking at:

  • 1. Financial Health: Is RDVT’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.

  • 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.

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