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The simplest way to benefit from a rising market is to buy an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Red Violet, Inc. (NASDAQ:RDVT) have tasted that bitter downside in the last year, as the share price dropped 42%. That contrasts poorly with the market decline of 17%. On the other hand, the stock is actually up 29% over three years. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.
It's worthwhile assessing if the company's economics have been moving in lockstep with these underwhelming shareholder returns, or if there is some disparity between the two. So let's do just that.
See our latest analysis for Red Violet
Because Red Violet made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last twelve months, Red Violet increased its revenue by 22%. We think that is pretty nice growth. Meanwhile, the share price is down 42% over twelve months, which is disappointing given the progress made. You might even wonder if the share price was previously over-hyped. However, that's in the past now, and it's the future that matters most.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
This free interactive report on Red Violet's balance sheet strength is a great place to start, if you want to investigate the stock further.
A Different Perspective
Red Violet shareholders are down 42% for the year, falling short of the market return. The market shed around 17%, no doubt weighing on the stock price. Fortunately the longer term story is brighter, with total returns averaging about 9% per year over three years. The recent sell-off could be an opportunity if the business remains sound, so it may be worth checking the fundamental data for signs of a long-term growth trend. It's always interesting to track share price performance over the longer term. But to understand Red Violet better, we need to consider many other factors. For instance, we've identified 1 warning sign for Red Violet that you should be aware of.
Of course Red Violet may not be the best stock to buy. So you may wish to see this free collection of growth stocks.