Is RILY Stock A Buy?

Is RILY Stock A Buy? B. Riley Financial Inc (NASDAQ:RILY) is a diversified financial services platform that’s knee-deep in the special purpose acquisition companies (SPAC) market. A SPAC raises money through an initial public offering (IPO) as a blank check company with the purpose of acquiring another company to take it public.

This method of going public became all the buzz in the 2020s, and this Santa Monica, California-based financial firm formed four blank check companies so far. The most recent, called B. Riley Principal 250 Merger, aimed for $150 million in its 15-million-unit public offering.

Its acquisition target is so far wide open, as it’s aiming for an enterprise value of $800 million to $2 billion with no specified geographic or industry need.

But instead of investing in any one individual SPAC, is RILY stock a buy?

It has a solid track record so far – its April 2019 SPAC raised $125 million and merged with Alta Equipment Co to become Alta Equipment Group Inc (NYSE:ALTG). Next came a May 2020 SPAC raising $175 million to merge with EOS Energy Enterprises Inc (NASDAQ:EOSE).

The third SPAC, B. Riley Principal 150 Merger (NASDAQ:BRPM), raised $172.5 million in February 2021 but has yet to announce an acquisitions target. And these two shell company mergers will affect the bottom line, but ownership of multiple companies is not the only revenue stream the company is setting up.

B. Riley Financial is also a market intelligence company with financial solutions to assist in strategic, operational, financial advisory, and capital needs. This makes it a powerful force in the financial industry, so let’s open the books to determine if it can make investors a pretty penny or will leave portfolios empty.

RILY Market Share

Because it’s an established company with diversified revenue streams, breaking down B. Riley Financial’s market share requires a comprehensive assessment of each market. Its full year revenue for 2020 was $200.4 million, and that comes from both episodic and recurring business.

The company offers a plethora of services, including investment banking, institutional brokerage, and wealth management. It’s also involved in auctions and liquidation, financial consulting, principal investments, and licensing of brand trademarks, like English Laundry, Joan Vass, and Limited Too.

Each piece represents a relatively small piece in a crowded market, but they add up to a successful company. Capital Markets operating revenues of $514.7 million and Auction & Liquidation revenue of $88.8 million represent the largest growth sectors. Financial Consulting brought in $91.6 million for the year, and Principal Investments drew $87.1 million.

All divisions grew through the pandemic, and it even added brand licensing in October 2019 (which brought in $16.5 million in its first calendar year) while continuing to expand into other markets. If it wants to continue growing, however, it needs to stave off competition from the outside.

Who Competes With B. Riley Financial?

The company provides liquidity for other businesses, and like many financial firms has widely diversified revenue streams. Its most recent forays into brand licensing and SPACs shows just how much it’s investing further in diversification.

However, it’s unclear whether this business has a defensible moat that can truly protect its market capitalization around $2 billion. Trading prices around $70.00 in early 2021 is a 600-percent increase from pre-pandemic share prices in the $15.00-$20.00 range.

But its majority stake in each SPAC launched gives it a strong defense to protect and grow wealth. The fact that it’s more focused on market size than geographic market or industry niche served makes it easy to pivot across a wide range of trends.

Moving forward, the company may have slower growth, but it also has an attractive dividend yield of 2.81 percent annually. And its payment history is stellar, so investors seeking to preserve wealth while accessing liquidity will appreciate this stock.

Is RILY Growing Revenues?

B. Riley Financial grew revenues heading into the 2020s. In 2017, the company earned $322.2 million, which rose to $423 million the next year. Revenue of $652.1 million in the 2019 fiscal year were then surpassed by $902.7 million total revenue for 2020.

This shows that the pandemic did little to nothing to slow its growth trajectory, and the company is trading under 10 times overall earnings. We’ll dive further into that in a moment, but first let’s examine why revenues are continuing to trend upward.

Executive leadership announced significant retail restructuring with at-the-market business continuing to grow. And capital markets showed an increase of larger transactions while the company innovated on the platform to add service offerings that complement existing business.

Its commitment to further vertical and horizontal expansion should serve it well, if it can maintain operational efficiency.

RILY Earnings To Turn Positive?

Net income in 2018 of $15.5 million equated to $0.58 per share, and the company continued growing returns for investors from there. In 2019, the company exploded to $81.3 million net income, which added up to $2.95 per diluted share.

By 2020, the company earned $200.4 million off its $902.7 million in total revenues. Annual investment gains were $104 million, and operating EBITDA more than doubled.

This gave the company $406.8 million in total adjusted EBITDA for the year, versus $207.9 million in the prior year. That shows the company’s investment strategy is paying off, and it’s continuing to add to the bottom line. B. Riley Financial certainly earned its market valuation growth over the past decade and is on a path for further growth moving forward.

Of course, the management team will ultimately determine the firm’s success.

RILY Management Has A Proven Track Record

Bryant Riley is the Chairman and Co-Chief Executive Officer of B. Riley Financial, while Tom Kelleher also serves as Co-CEO.

Riley has an estimated net worth over $350 million, with the bulk coming from his ownership of B. Riley stock. He joined the company in 1997 after spending seven years running two other companies after graduating from college.

Kelleher joined the company in 2014 and served as President and Board Member before taking over as Co-CEO. These men have the experience and liquidity to steer through any issues, but there are some obstacles coming down the road.

Headwinds Facing RILY

The company so far is performing well in spite of economic hurdles, but the financial markets are sure to remain shaky throughout the next decade.

The post-pandemic economy is still being held up by government stimulus funds, which will eventually run out. Sooner or later, a massive wave will fall.

Navigating this market isn’t going to be easy, and no company has a fully fleshed out plan to deal with it yet.

Is RILY Stock A Buy? Conclusion

B. Riley Financial is a full-service financial company involved in everything from institutional investments and market intelligence to deposit accounts, lending, and more. Its most recent SPACS are still seeking the right investment opportunities, and it’s licensing out some heavy-hitting brands across retail and more.

If it can navigate the rocky waters of the upcoming economy, it will be well-placed to continue sustainable and steady growth. But nothing is ever guaranteed, so it could take longer to mushroom than we think.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.