A-Portfolio

Bias / risk / action

• Bias: Bullish on the business, disciplined on the stock.
• Risk: The company is small, the shares are thinly traded, regulation can restrict access to data, and valuation already assumes strong execution.
• Action: WATCH. No position. Do not chase the earnings reaction. Start staged diligence near the $60 offering price only if growth and margins hold.

Why this matters, in plain English

Red Violet sells tools that help businesses and real-estate agents verify who people are, find fraud, and make safer decisions. More customers are using those tools, and profits are growing faster than sales because the same data platform can serve more users without costs rising as quickly. That can make the company more valuable, but Derek should care about the price: the stock already charges a premium for that future.

Why this name now

The second quarter showed a real operating inflection, not a promotional one. Revenue rose 23%, GAAP net income rose 85%, and GAAP operating cash flow rose 42% year over year. Adjusted EBITDA, a management-defined non-GAAP profit measure, rose 48% and reached a 42% margin.

The customer engine is still expanding:

• IDI added 447 customers, ending at 10,869, a mechanically calculated 4.3% sequential increase.
• FOREWARN added 25,493 users, ending at 443,173, a mechanically calculated 6.1% sequential increase.
• 660 REALTOR associations were contracted for FOREWARN.

The balance sheet also changed. In August, Red Violet sold 1,916,667 shares, including the underwriters' full option, for approximately $109 million of net proceeds. That gives management acquisition firepower, but it also increased the share count by approximately 13.6% versus the pre-offering base. Capital allocation now matters as much as organic execution.

Score: 74/100

Numbers that matter

GAAP results

• Q2 revenue: $26.718 million, up 22.7% from $21.774 million.
• Q2 gross profit: $20.2 million, up 29%.
• Q2 GAAP gross margin: 76%, up from 72%.
• Q2 operating income: $6.095 million.
• Q2 net income: $4.960 million, up 85%.
• Q2 diluted EPS: $0.34.
• Q2 operating cash flow: $10.6 million, up 42%.
• Cash at June 30: $49.972 million.
• Total liabilities at June 30: $8.736 million.

Management-defined non-GAAP measures

• Q2 adjusted EBITDA: $11.248 million, up 48%.
• Adjusted EBITDA margin: 42%, up from 35%.
• Q2 adjusted net income: $7.2 million, up 58%.
• Adjusted diluted EPS: $0.50.
• Q2 free cash flow: $7.172 million after capital expenditures and capitalized intangible costs.

Mechanical valuation, not company guidance

Using the August 10 close, 16.047 million shares outstanding after the offering, approximately $159.0 million pro forma cash, and doubling first-half 2026 results:

• Market capitalization: approximately $1.050 billion.
• Enterprise value: approximately $891 million.
• Annualized revenue: approximately $105.1 million.
• Annualized adjusted EBITDA: approximately $43.8 million.
• Enterprise value / annualized revenue: approximately 8.5x.
• Enterprise value / annualized adjusted EBITDA: approximately 20.3x.
• Annualized GAAP earnings multiple: approximately 56x.
• Annualized Q2 free-cash-flow yield: approximately 2.7%.

These are simple run-rate calculations. They are not management forecasts, analyst estimates, or guarantees.

Bull / base / bear

These scenarios apply 6x, 8x, and 10x enterprise-value-to-annualized-revenue multiples to the $105.1 million first-half run rate, then add approximately $159.0 million of pro forma cash and divide by 16.047 million shares.

• Bull: $75.40, approximately +15%. Revenue stays above 20%, margins keep expanding, and management deploys the new cash into an accretive acquisition. The market sustains a 10x multiple.
• Base: $62.30, approximately -5%. Growth remains healthy but slows toward the high teens. An 8x multiple recognizes quality without paying for perfection.
• Bear: $49.20, approximately -25%. Growth slips, regulation or data-supply risk rises, or acquisition returns disappoint. The multiple compresses to 6x.

The asymmetry is not good enough at $65.42. This is a company to know, not a stock to chase.

What the market may be missing

The easy read is "small data broker." The better read is a software-like identity intelligence platform with expanding margins, recurring customer workflows, and two distribution engines aimed at different markets. IDI sells deeper enterprise capabilities. FOREWARN spreads through real-estate associations and creates a broad user funnel.

The market may also underestimate the strategic option created by roughly $159 million of pro forma cash against only $8.7 million of reported total liabilities at quarter-end. That option is valuable only if management buys capability, data, or distribution at disciplined prices. Cash without discipline is just expensive patience.

Kill criteria

The thesis is broken if any of these occur:

1. Revenue growth falls below 15% year over year for two consecutive quarters without a credible temporary cause.

2. Adjusted EBITDA margin falls below 35% while growth slows.

3. IDI customers or FOREWARN users decline sequentially for two quarters.

4. A legal, regulatory, or vendor event materially restricts access to core data.

5. Management spends the new capital on a large acquisition that is dilutive to margins or cash generation without a clear integration plan.

6. Stock-based compensation or repeated equity issuance prevents per-share earnings from compounding.

Entry discipline

No position at the current $65.42 reference price.

• First diligence zone: $58 to $61, centered on the $60 offering price.
• Higher-conviction zone: $52 to $56, provided the operating thesis is intact.
• No chase: Above $70, the market is demanding near-flawless execution.
• Candidate threshold: RDVT needs either a price reset or another quarter proving 20%+ growth with a 40%+ adjusted EBITDA margin before it can graduate from WATCH to A-Portfolio candidate.

Because the score is below 80, there is no position size recommendation.

Sources and as-of date

As of: August 11, 2026, 7:08 a.m. ET. Market price is the August 10 regular-session close because the market was not yet open.

1. Red Violet Q2 2026 Form 10-Q, filed August 10, 2026:

https://www.sec.gov/Archives/edgar/data/1720116/000119312526342598/rdvt-20260630.htm

2. Red Violet final prospectus supplement, 1,666,667-share base offering at $60, filed August 6, 2026:

https://www.sec.gov/Archives/edgar/data/1720116/000119312526338364/rdvt_final_pro_supp_2026.htm

3. SEC company submissions for Red Violet, CIK 0001720116:

https://data.sec.gov/submissions/CIK0001720116.json

4. SEC company facts for Red Violet, CIK 0001720116:

https://data.sec.gov/api/xbrl/companyfacts/CIK0001720116.json

5. Alpaca IEX broker feed, August 10, 2026 close and one-year price history:

https://alpaca.markets/data

6. Benzinga earnings headline, August 10, 2026, used only as a secondary cross-check:

https://www.benzinga.com/news/26/08/61096902/correction-red-violet-q2-adj-eps-0-50-beats-0-33-estimate-sales-26-700m-beat-25-618m-estimate

Bottom line: RDVT is executing like a future category leader. The balance sheet is loaded, margins are expanding, and customer adoption is real. But at roughly 8.5x annualized revenue, patience is the edge.

Research only. Derek makes the allocation decision.