Here's Why We Think Red Violet (NASDAQ:RDVT) Might Deserve Your Attention Today

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Red Violet (NASDAQ:RDVT). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Red Violet

How Fast Is Red Violet Growing Its Earnings Per Share?

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. So for many budding investors, improving EPS is considered a good sign. Commendations have to be given in seeing that Red Violet grew its EPS from US$0.088 to US$1.06, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Red Violet shareholders can take confidence from the fact that EBIT margins are up from 0.9% to 6.5%, and revenue is growing. Both of which are great metrics to check off for potential growth.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Since Red Violet is no giant, with a market capitalisation of US$248m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Red Violet Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Red Violet top brass are certainly in sync, not having sold any shares, over the last year. But more importantly, Independent Director William Livek spent US$90k acquiring shares, doing so at an average price of US$18.40. Strong buying like that could be a sign of opportunity.

The good news, alongside the insider buying, for Red Violet bulls is that insiders (collectively) have a meaningful investment in the stock. As a matter of fact, their holding is valued at US$41m. That shows significant buy-in, and may indicate conviction in the business strategy. As a percentage, this totals to 17% of the shares on issue for the business, an appreciable amount considering the market cap.

Should You Add Red Violet To Your Watchlist?

Red Violet's earnings have taken off in quite an impressive fashion. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Red Violet deserves timely attention. However, before you get too excited we've discovered 1 warning sign for Red Violet that you should be aware of.

The good news is that Red Violet is not the only growth stock with insider buying. Here's a list of growth-focused companies in the US with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.