Breaking Down Velocity Financial, Inc. (VEL) Financial Health: Key Insights for Investors

Are you keeping a close watch on Velocity Financial, Inc. (VEL) and wondering about its financial stability? As a prominent player in financing solutions for investors in 1-4 unit and small commercial properties, understanding Velocity Financial's financial health is crucial for making informed investment decisions. Did you know that Velocity Financial's total loan portfolio reached $5.1 billion as of December 31, 2024, marking a 24.1% increase from 2023? With a net income of $68.4 million for the full year 2024, up from $52.3 million in 2023, and loan production surging to $563.5 million in Q4 2024, how sustainable is this growth, and what are the key factors driving it? Let’s dive into the metrics that matter.

Velocity Financial, Inc. (VEL) Revenue Analysis

Understanding Velocity Financial, Inc.'s (VEL) revenue streams is crucial for investors seeking insights into the company's financial health and growth potential. Here's a breakdown of key aspects related to VEL's revenue:

Breakdown of Primary Revenue Sources:

• Velocity Financial operates primarily in the financial services sector, focusing on business purpose loans.
• The company's revenue is derived from interest income and other operating income.

Year-over-Year Revenue Growth Rate:

• In 2024, Velocity Financial reported annual revenue of $177.65 million, reflecting a substantial growth of 44.76% compared to the previous year.
• For the trailing 12 months ending December 31, 2024, revenue reached $236.03 million, with a year-over-year growth of 29.4%.
• The fiscal year 2024 saw annual revenue of $236.0 million, a 37.4% increase year-over-year.

Historical Revenue Growth:

Velocity Financial has demonstrated significant revenue growth over the past few years:

• Last 3 Years: +120.34% per year
• Last 5 Years: +31.28% per year

Quarterly Revenue Growth:

• The quarter ending December 31, 2024, showed revenue of $52.90 million, an impressive 88.42% growth.
• Quarterly revenue for Q4 2024 was reported as $71.2 million, up 27.4% from the previous quarter.

Revenue History:

A look at Velocity Financial's revenue history provides context to its growth trajectory:

Contribution of Different Business Segments to Overall Revenue:

• The primary revenue segment for Velocity Financial is Financial Services - Mortgage, contributing $175.4 million.

Analysis of Any Significant Changes in Revenue Streams:

• Velocity Financial has strategically focused on lending to residential and commercial real estate investors, leading to a 64% increase in loan originations in 2024.
• The company has experienced substantial growth in loans collateralized by Investor 1-4 Rental properties and 'Other' commercial properties, with year-over-year increases of 19.3% and 61.1%, respectively.
• Velocity Financial's strategic positioning in underserved segments, particularly the 145.9% growth in Traditional Commercial financing, indicates that the company has identified high-margin opportunities.

For more detailed insights, you can explore: Breaking Down Velocity Financial, Inc. (VEL) Financial Health: Key Insights for Investors

Velocity Financial, Inc. (VEL) Profitability Metrics

A close examination of Velocity Financial, Inc.'s profitability reveals several key metrics and trends for investors to consider. For the full year 2024, the company reported a net income of $68.4 million, a notable increase from $52.3 million in 2023. Core net income also rose to $72.9 million, compared to $53.4 million the previous year.

Here's a detailed look at the profitability metrics:

• Net Income: $68.4 million for 2024, compared to $52.3 million for 2023.
• Core Net Income: $72.9 million for 2024, up from $53.4 million for 2023.
• Earnings per Diluted Share (EPS): $1.91 for 2024, an increase from $1.52 in 2023.
• Core Earnings per Diluted Share: $2.03 for 2024, compared to $1.54 in 2023.

These figures highlight a strong upward trend in Velocity Financial, Inc.'s earnings and profitability.

The company's record full-year 2024 earnings were driven by continued strong production and high underwriting standards. Loan production reached record levels in 2024, contributing to the impressive financial results. The company's total loan portfolio was $5.1 billion in UPB as of December 31, 2024, a 24.1% increase from $4.1 billion in UPB as of December 31, 2023.

Here's a summary of Velocity Financial, Inc.'s financial performance metrics:

Velocity Financial's operating expenses for the year ended December 31, 2024, totaled $139.6 million, an increase from $100.6 million in the previous year. This rise is attributed to higher compensation and employee benefits, origination expenses, and other factors. The largest operating expense was General & Administrative costs, amounting to $79.1 million (126% of total expenses).

Explore more about Velocity Financial, Inc. (VEL) and its investors: Exploring Velocity Financial, Inc. (VEL) Investor Profile: Who’s Buying and Why?

Velocity Financial, Inc. (VEL) Debt vs. Equity Structure

Understanding how Velocity Financial, Inc. (VEL) finances its growth is crucial for investors. This involves examining the company's debt levels, debt-to-equity ratio, and recent financing activities to assess its financial stability and growth strategy.

As of the fiscal year 2024, Velocity Financial, Inc. (VEL) maintains a mix of debt and equity to fund its operations and expansion. A review of the company's latest financial statements is essential to get precise figures for long-term and short-term debt. These figures provide a snapshot of the company's obligations and its ability to meet them.

The debt-to-equity ratio is a key metric for evaluating Velocity Financial, Inc.'s (VEL) financial leverage. To calculate this ratio, you would divide the company’s total liabilities by its total equity. For example, if Velocity Financial, Inc.'s (VEL) total liabilities were $200 million and total equity was $100 million, the debt-to-equity ratio would be 2:1. A higher ratio indicates that the company relies more on debt, which can amplify both gains and losses. It is important to compare this ratio against industry standards to determine whether Velocity Financial, Inc.'s (VEL) leverage is typical for its sector. Keep in mind that industry standards vary, but a ratio significantly above the average might signal higher risk.

Recent activities, such as debt issuances, credit ratings, or refinancing, provide insights into Velocity Financial, Inc.'s (VEL) financial strategy and health. For instance, a new debt issuance might mean the company is investing in growth opportunities, while a credit rating upgrade could lower borrowing costs. Conversely, a downgrade might raise concerns about the company’s ability to manage its debt. Refinancing activities can also indicate efforts to optimize the debt structure and reduce interest expenses. As an example, Velocity Financial, Inc. (VEL) announced the closing of a $175 million securitization, VELT 2024-1, in March 2024. This securitization is backed by a pool of approximately $197.7 million of commercial mortgage loans. The transaction included the issuance of seven classes of notes with an initial weighted average coupon of 5.70%.

Here are some factors that influence how Velocity Financial, Inc. (VEL) balances debt and equity:

• Market Conditions: Interest rates and investor sentiment affect the cost and availability of debt and equity financing.
• Growth Strategy: Ambitious growth plans may require more capital, influencing the mix of debt and equity.
• Financial Performance: Strong profitability and cash flow can support more debt, while weaker performance may necessitate more equity financing.

The following table illustrates a hypothetical debt and equity structure for Velocity Financial, Inc. (VEL):

Balancing debt and equity is a strategic decision. More debt can fuel faster growth but also increases financial risk. Equity financing, while less risky, can dilute ownership and may be more expensive in the long run. Velocity Financial, Inc.'s (VEL) approach to this balance reflects its overall financial strategy and risk tolerance.

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Velocity Financial, Inc. (VEL) Liquidity and Solvency

Liquidity is crucial for assessing a company's ability to meet its short-term obligations. For Velocity Financial, Inc. (VEL), a review of key liquidity ratios and cash flow trends provides insights into its financial health. You might also be interested in Exploring Velocity Financial, Inc. (VEL) Investor Profile: Who’s Buying and Why?

Here's an analysis of Velocity Financial, Inc.'s liquidity position:

• Current Ratio: As of December 2024, the current ratio stands at 0.59. This indicates a decrease compared to previous years, with earlier figures showing 0.42 in December 2021 and 1.31 in December 2020.
• Quick Ratio: The quick ratio, which excludes inventory and is a more stringent measure of liquidity, is also at 0.59 as of December 2024. Similar to the current ratio, this is down from 0.36 in December 2021 and 1.11 in December 2020.
• Cash Ratio: The cash ratio for December 2024 is 0.34, compared to 0.12 in December 2021 and 0.17 in December 2020.

These ratios suggest a fluctuating liquidity position. A current ratio below 1.0 indicates that the company's current liabilities exceed its current assets, which could raise concerns about its ability to cover short-term obligations.

Working capital is a measure of a company's short-term financial health, representing the difference between its current assets and current liabilities. Monitoring its trends can reveal insights into liquidity management.

• The change in working capital for the quarter ending September 30, 2024, was reported as -$9.599 million.

A negative change in working capital can indicate potential challenges in managing short-term assets and liabilities efficiently.

An overview of cash flow statements provides insights into how Velocity Financial, Inc. generates and uses cash. Here's a summary based on the available data:

• Free Cash Flow: For Q4 2024, Velocity Financial, Inc.’s free cash flow was $1.00.
• For the full fiscal year 2024, the company's free cash flow decreased, while operating cash flow was >-$0.01.

Examining the trends in operating, investing, and financing cash flows helps to understand the sustainability and sources of the company's cash generation.

Based on the 2024 data, Velocity Financial, Inc. maintains a liquidity of $95.9 million, which includes $50 million in cash and cash equivalents, alongside $46 million in available liquidity on unfinanced collateral. Additionally, the company has a total available warehouse line capacity of $435.0 million as of December 31, 2024.

Potential liquidity concerns may arise from the current and quick ratios being below 1, indicating that current liabilities exceed current assets. However, the company also has certain strengths:

• $95.9 million in liquidity.
• Available warehouse line capacity of $435.0 million.
• A recourse debt-to-equity ratio of 1.2x, suggesting a relatively conservative financial position.

The following table summarizes key liquidity ratios for Velocity Financial, Inc. as of December 2024:

Velocity Financial, Inc. (VEL) ended the year with a solid liquidity position, holding nearly $96 million, which includes $50 million in cash and cash equivalents, and $46 million in available liquidity on unfinanced collateral.

Velocity Financial, Inc. (VEL) Valuation Analysis

When evaluating whether Velocity Financial, Inc. (VEL) is overvalued or undervalued, several key financial metrics and market indicators should be considered. These include price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios, stock price trends, dividend yield and payout ratios (if applicable), and analyst consensus.

Currently, Velocity Financial's valuation paints an interesting picture when juxtaposed with industry averages:

• P/E Ratio (TTM): 10.09 compared to the industry average of 8.7
• Price to Sales (TTM): 3.7 versus an industry average of 2.73
• Price to Book (MRQ): 1.25, while the industry averages 1.42

These metrics provide a mixed view. The P/E and Price to Sales ratios are slightly higher than the industry average, which might suggest that the stock is relatively overvalued compared to its peers. However, the Price to Book ratio is lower, potentially indicating undervaluation.

Analyzing Velocity Financial's stock price trends over the last 12 months reveals a range between $15.70 and $20.98. As of April 17, 2025, the stock price closed at $17.44.

As of now, Velocity Financial does not offer a dividend. Therefore, dividend yield and payout ratios are 0.00%.

Analyst consensus plays a crucial role in assessing stock valuation. The consensus rating for Velocity Financial is a Moderate Buy. This is based on ratings from 4 Wall Street analysts. The average price target for Velocity Financial is $21.75, with the high estimate at $23.00 and the low estimate at $20.00. This average price target represents a potential increase of 25.07% from the current price.

Here’s a summary of the analyst ratings:

• Consensus Rating: Moderate Buy
• Number of Buy Ratings: 3
• Number of Hold Ratings: 0
• Number of Sell Ratings: 1
• Average Price Target: $21.75

Considering these factors, the valuation of Velocity Financial appears to be nuanced. While some valuation ratios suggest it might be slightly overvalued, analyst ratings indicate a positive outlook with a significant potential upside. Investors should weigh these factors along with their own due diligence to make an informed decision.

Velocity Financial, Inc. (VEL) Risk Factors

Several factors, both internal and external, can significantly impact Velocity Financial, Inc. (VEL)'s financial health. These risks span industry competition, regulatory changes, and overall market conditions. Understanding these potential challenges is crucial for investors.

Industry Competition: The landscape of the commercial real estate (CRE) lending market is highly competitive. Velocity Financial, Inc. (VEL) faces competition from various sources, including:

• Other specialty finance companies
• Banks
• Credit unions
• Mortgage REITs
• Private equity firms

Increased competition could lead to pressure on interest rates, reduced loan origination volume, and decreased profitability for Velocity Financial, Inc. (VEL).

Regulatory Changes: Changes in regulations governing the financial industry and real estate lending can pose risks. These may include:

• Changes to lending standards
• Increased compliance costs
• New restrictions on loan products

Such changes could adversely affect Velocity Financial, Inc. (VEL)'s ability to operate and maintain profitability.

Market Conditions: Broader economic and market factors also present risks, such as:

• Interest rate fluctuations
• Changes in real estate values
• Economic recession

Rising interest rates can increase borrowing costs and decrease demand for commercial real estate loans. Declining real estate values can lead to higher loan-to-value ratios and increased risk of default. An economic recession could significantly impact borrowers' ability to repay loans, increasing credit losses for Velocity Financial, Inc. (VEL).

Operational, Financial, and Strategic Risks: Recent earnings reports and filings may highlight specific operational, financial, or strategic risks. These could include:

• Credit Risk: The risk of borrowers defaulting on their loans is a primary concern. Effective credit underwriting and monitoring are essential to mitigate this risk.
• Liquidity Risk: Maintaining sufficient liquidity to fund loan originations and meet debt obligations is critical. Disruptions in the capital markets could limit access to funding.
• Interest Rate Risk: The risk that changes in interest rates could adversely affect profitability. This risk can be managed through hedging strategies and careful matching of asset and liability maturities.

Mitigation Strategies: To address these risks, Velocity Financial, Inc. (VEL) may implement various mitigation strategies, such as:

• Diversifying its loan portfolio across different property types and geographic regions.
• Implementing rigorous credit underwriting standards.
• Actively monitoring loan performance.
• Employing hedging strategies to manage interest rate risk.
• Maintaining adequate capital reserves.

Here you can read more about Velocity Financial, Inc. (VEL): Breaking Down Velocity Financial, Inc. (VEL) Financial Health: Key Insights for Investors

Velocity Financial, Inc. (VEL) Growth Opportunities

Velocity Financial, Inc. (VEL) focuses on originating and managing small balance commercial (SBC) loans. Future growth hinges on several factors, including strategic initiatives, market dynamics, and competitive positioning.

Key growth drivers for Velocity Financial, Inc. (VEL) include:

• Product Innovations: Continuously refining and expanding their SBC loan products to meet the evolving needs of real estate investors and small business owners.
• Market Expansions: Targeting new geographic markets and underserved segments within the SBC lending space.
• Strategic Acquisitions: Pursuing strategic acquisitions to expand market share, enhance product offerings, or gain access to new technologies.

While specific future revenue growth projections and earnings estimates are subject to market conditions and company performance, analyzing past financial data can provide insights. Velocity Financial, Inc. reported the following for the fiscal year 2024:

Strategic initiatives and partnerships are crucial for Velocity Financial, Inc.'s (VEL) growth. These may include:

• Technology Investments: Implementing advanced technology solutions to streamline loan origination, underwriting, and servicing processes.
• Strategic Alliances: Forming partnerships with real estate brokers, financial advisors, and other intermediaries to expand distribution channels.
• Enhanced Data Analytics: Leveraging data analytics to identify emerging market trends, assess credit risk, and optimize pricing strategies.

Velocity Financial, Inc. (VEL) possesses several competitive advantages that position it for growth:

• Specialized Expertise: Deep understanding of the SBC lending market and the unique needs of borrowers in this segment.
• Strong Origination Network: Established network of loan brokers and other referral sources.
• Disciplined Underwriting: Rigorous underwriting standards and risk management practices.
• Efficient Servicing Platform: Scalable servicing platform that supports loan portfolio growth.

Understanding Velocity Financial, Inc.'s (VEL) mission, vision, and core values provides additional context for assessing its strategic direction and growth potential. More information can be found at: Mission Statement, Vision, & Core Values of Velocity Financial, Inc. (VEL).