Issue #47

High-margin businesses quietly winning behind the scenes

The next wave of tech winners won’t come from flashy consumer apps or hype-driven trends — it will come from mission-critical software quietly embedded in global industries. From AI-powered finance platforms running behind major automakers to identity intelligence systems protecting businesses from fraud and risk, the real value is being created behind the scenes.

As markets look beyond mega-cap tech, investors are increasingly asking: where is durable growth already turning into real profits?

👉 One company is modernizing the global auto finance ecosystem with recurring SaaS revenue and long-term enterprise contracts.
👉 The other is monetizing identity data at massive scale, delivering 20%+ growth with expanding margins and strong cash generation.
👉 Both operate in essential niches, benefit from AI-driven tailwinds, and remain underappreciated by the broader market.

In this edition, we break down two under-the-radar software stocks building the digital infrastructure that powers finance, security, and decision-making — and why investors are paying closer attention heading into 2026.

NetSol Technologies (NASDAQ: NTWK)

NetSol Technologies (NASDAQ: NTWK) is a global provider of IT and enterprise software solutions, specializing in the asset finance and leasing industry. For over 40 years, it has served as a backbone for major automotive manufacturers (OEMs), dealerships, and financial institutions, helping them manage the complete lifecycle of asset financing, from originations to loan servicing. Its flagship Transcend Platform acts as an AI-powered, cloud-based ecosystem that unifies digital retail and finance operations for global brands like MINI and various tier-one automakers.

Business Model and Revenue Streams 📦

NetSol is in the midst of a multi-year strategic pivot from a traditional license-heavy software model to a recurring revenue model. This transition is designed to provide greater financial predictability and higher-quality earnings. The company’s revenue is primarily categorized into three segments:

• Subscription and Support Revenues: This is the company's fastest-growing and most critical segment. It includes Software-as-a-Service (SaaS) and cloud-based offerings. In Fiscal Year 2025, this stream jumped 18% to $32.9 million, now representing roughly half of total revenue.
• Services Revenue: This encompasses implementation, consultancy, and maintenance services. It is often tied to large-scale deployments of the Transcend platform. In FY 2025, services revenue grew by 16.3%, driven by digital transformation projects in the U.S. and UK.
• License Fees: Historically a major contributor, license fees now represent a much smaller portion of the mix (under $1 million in FY 2025) as the company intentionally pushes customers toward subscription models.

The business is sensitive to macroeconomic shifts, particularly in the automotive and credit markets. High interest rates and credit tightening can lead to rising auto loan delinquencies, which may cause NetSol’s clients to delay large IT expenditures. Furthermore, the company faces "seasonal" headwinds, such as the summer holiday slowdown in Europe and Asia, and global trade tensions—specifically tariffs—that impact the capital expenditure budgets of European and Chinese automakers.

Recent Performance and Corporate Developments 📈

NetSol’s recent performance reflects a "tale of two quarters," balancing strong full-year growth with near-term investment costs.

Q1 Fiscal 2026 Financial Highlights (Ended Sept 30, 2025): 💰

• Total Revenue: $15.0 million, a 2.8% increase year-over-year.
• Subscription Growth: Subscription and support revenue rose 9.4% to $9.0 million, continuing the shift toward recurring income.
• Net Loss: The company reported a GAAP net loss of $2.4 million ($0.20 per share), compared to a small profit in the prior year. This was largely due to a 36% spike in sales and marketing expenses as NetSol aggressively hires senior leadership to capture AI-driven demand.
• Cash Position: Liquidity remains strong, with cash and equivalents rising to $22.7 million, providing a buffer for continued R&D.

Strategic Initiatives and Mergers: 🤝

While there were no major M&A transactions in late 2025, NetSol’s commercial momentum is surging. On December 16, 2025, the company announced a massive $50 million, four-year contract extension with a tier-one global auto captive. This renewal ensures that NetSol’s Transcend Finance platform will continue powering operations across 12 global markets. Additionally, the company launched Check AI in October 2025—an AI-native credit decisioning engine—to automate underwriting and stay ahead of the "AI-first" technology curve.

Path to Profitability and Fair Value 🎯

NetSol has already proven it can be profitable, reporting a GAAP net income of $2.9 million for the full fiscal year 2025. The current dip into a quarterly loss is a strategic choice: "investing ahead of demand."

• Scaling the Cloud: As more legacy customers migrate from the "R1" platform to the SaaS-based "Transcend," gross margins are expected to stabilize and eventually expand toward the 50-60% range.
• AI Efficiency: By using its own AI tools (via Transcend AI Labs), NetSol aims to increase revenue per employee, allowing for growth without a proportional increase in headcount.

Regarding fair value, NetSol is currently a "micro-cap" stock with a market capitalization of approximately $35 million. With trailing twelve-month revenue around $66 million, the stock trades at a Price-to-Sales (P/S) ratio of roughly 0.5x—significantly lower than the software industry average. This suggests that the market may be undervalued for its recurring revenue growth, though the low market cap introduces higher volatility.

Analyst Estimates and Ratings 📊

• Consensus Rating: Due to its micro-cap status, NetSol has limited formal analyst coverage, but it has recently appeared on "Buy" screens for value-oriented tech investors.
• Price Sentiment: Following the $50M contract news in December 2025, the stock saw a nearly 20% intraday surge, reflecting positive investor sentiment regarding its long-term contract visibility.
• Target Outlook: While consensus targets are sparse, technical analysts have highlighted "breakout" potential toward the $4.30 - $5.50 range if the company returns to GAAP profitability in the coming quarters.

Investor-Focused Takeaway: Is NTWK Right for Your Portfolio?

NetSol is a high-risk, high-reward "pivot" play. It offers deep domain expertise in a niche (asset finance) that is essential to the global automotive industry. The company is successfully shedding its "old software" skin and emerging as a modern, AI-driven SaaS provider.

What to Watch in the Near Term: 📈

• Pipeline Conversion: Look for more wins like the $50M auto captive deal to validate the global demand for the Transcend platform.
• Margin Recovery: Monitor if the 36% increase in sales spending translates into accelerated revenue growth by mid-2026.
• Macro Environment: Watch for easing interest rates, which would likely spark a renewal in asset leasing activity and benefit NetSol’s core clients.

Recommendation:

NetSol Technologies (NTWK) is a compelling pick for investors looking for a valuation play in the tech sector. Its massive discount to sales and growing recurring revenue base suggest significant upside if management can maintain operational discipline through 2026.

Red Violet (NASDAQ: RDVT)

Red Violet (NASDAQ: RDVT) is a premier identity intelligence company that uses high-speed "data fusion" technology to help businesses solve complex problems in real-time. Through its cloud-based platforms, IDI and FOREWARN, it transforms billions of fragmented data points into actionable insights for fraud prevention, identity verification, and safety. Unlike traditional data providers, Red Violet focuses on high-precision "interrelationships"—connecting people, businesses, and assets to give a 360-degree view of risk.

Business Model and Revenue Streams 📦

Red Violet operates a highly scalable software-as-a-service (SaaS) model, focused on high-margin, mission-critical data. Its revenue is remarkably stable, with roughly 77% derived from recurring, stable-pricing contracts. The company makes money through two primary products:

• IDI Platform: A sophisticated analytics tool used by law enforcement, financial services, and corporate security. It enables users to perform deep investigative due diligence, debt recovery, and fraud detection.
• FOREWARN: A specialized safety application designed specifically for the real estate industry. It allows agents to instantly verify the identity and criminal history of prospects before meeting them in person. This segment is a significant growth engine, now used by over 590 Realtor® Associations.

Macroeconomic policies, particularly those involving data privacy regulations and financial interest rates, act as both a challenge and an opportunity. While strict privacy laws require constant compliance investment, they also create a "moat" around Red Violet’s proprietary CORE™ technology, as smaller competitors struggle to meet legal standards. Furthermore, as economic uncertainty increases, demand for fraud detection and risk mitigation typically rises, insulating the company from broader market downturns.

Recent Performance and Corporate Developments 📈

Red Violet is currently "firing on all cylinders," recently achieving several financial milestones that have caught the attention of Wall Street.

Q3 2025 Financial Highlights (Ended Sept 30, 2025): 💰

• Total Revenue: Hit a record $23.1 million, a 21% increase year-over-year, beating analyst estimates.
• Net Income: Surged by 145% to $4.2 million, demonstrating that as revenue grows, an increasing amount drops straight to the bottom line.
• Adjusted EBITDA: Rose 35% to $9.0 million, with an impressive 39% margin. This reflects the company's powerful "operating leverage"—the ability to grow without significantly increasing costs.
• Customer Growth: The IDI platform added over 300 new customers in a single quarter, bringing its total base to nearly 10,000.

Strategic Initiatives and Mergers: 🤝

In late 2025, Red Violet was named to TIME’s list of "America’s Growth Leaders of 2026," a prestigious recognition of its financial stability and stock performance. While the company has not pursued major mergers recently, it is aggressively returning value to shareholders, recently increasing its share repurchase program by $15.0 million (bringing the total to $30 million). This signals management’s confidence that the stock is currently undervalued.

Path to Profitability and Fair Value 🎯

Red Violet has already transitioned into a consistently profitable entity, a rare feat for a high-growth tech company of its size. Its path to continued profit growth is clear:

• Public Sector Expansion: The company is making a major push into government and law enforcement verticals, which often provide long-term, high-value contracts.
• AI Integration: By utilizing its Doubao large language model and advanced "Check AI" tools, Red Violet is automating more of its data fusion processes, keeping gross margins high at around 84%.

In terms of fair value, the stock has traded in a range of $32 to $64 over the past year. With a market cap near $800 million, its Price-to-Earnings (P/E) ratio appears high at first glance (around 70x). However, when adjusted for its triple-digit net income growth and 39% EBITDA margins, many analysts view it as a "Growth at a Reasonable Price" (GARP) play rather than an overvalued tech stock.

Analyst Estimates and Ratings 📊

• Consensus Rating: Red Violet maintains a "Strong Buy" consensus from the analysts who cover it (including B. Riley and Lake Street). In fact, it has received several "Buy" reiterations in the last 30 days.
• Price Target: The average 12-month price target is approximately $68.50, suggesting a 20-25% upside from its current price of roughly $55.00. Some aggressive estimates place the target as high as $75.00.
• Earnings Surprise: The company has a consistent track record of "beating" expectations, most recently outperforming EPS estimates by $0.07 (a 25.8% surprise).

Investor-Focused Takeaway: Is RDVT Right for Your Portfolio?

Red Violet represents a pure-play investment in the growing "Identity Intelligence" sector. It offers a rare combination of high growth (20%+ revenue expansion) and actual profitability. Its "capital-light" model means most of its revenue translates into cash, which it is currently using to buy back its own shares.

What to Watch in the Near Term: 📈

• Enterprise Adoption: Watch for any major contract wins in the banking or healthcare sectors, which could serve as catalysts for a stock breakout.
• Insider Activity: While there has been some planned selling by executives (typical for diversification), continued institutional buying from firms like BlackRock remains a strong vote of confidence.
• Q4 Results (Feb 2026): Keep an eye on the upcoming year-end report to see if the company hits its projected $88M+ annual revenue target.

Recommendation:

Red Violet (RDVT) is a "Strong Buy" candidate for 2026. Its dominance in the Realtor safety niche through FOREWARN and its high-margin IDI platform make it a resilient growth story with significant room for valuation expansion.

Final Take: Two Hidden Software Compounding Machines

While most investors chase visible AI winners, NetSol Technologies (NTWK) and Red Violet (RDVT) are quietly monetizing the infrastructure layer of global finance and identity intelligence — where switching costs are high, contracts are sticky, and margins expand fast once scale kicks in.

🚗 NetSol Technologies (NTWK) — Enterprise SaaS With Asymmetric Upside
✔ Long-term, multi-year contracts with tier-one global auto captives
✔ Rapid shift to recurring SaaS and cloud-based revenue
✔ Deeply discounted valuation at ~0.5x sales
➤ Best for: Investors seeking a micro-cap SaaS turnaround with operating leverage as auto finance activity rebounds.

🔐 Red Violet (RDVT) — High-Margin Identity Intelligence Leader
✔ 20%+ revenue growth with 39% EBITDA margins
✔ 77% recurring revenue and strong free cash flow
✔ Aggressive share buybacks signal confidence in intrinsic value
➤ Best for: Investors looking for a proven, profitable growth stock with expanding margins and data-driven moats.

Investor Insight

📉 Want deep value + SaaS re-rating potential? → NTWK
​ 📈 Want profitable growth with elite operating leverage? → RDVT

Bottom Line:

These aren’t speculative tech bets — they’re quiet compounders embedded in mission-critical workflows. As markets rotate toward profitability, cash flow, and durable software revenue, NTWK and RDVT stand out as under-the-radar names where growth is already translating into real earnings power.

In a market moving beyond hype, operating leverage is the real alpha — and these two software plays are just getting started heading into 2026.

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Happy Trading
​— Team Premium Stock Alerts