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Investors Who Bought Sequoia Financial Group (ASX:SEQ) Shares A Year Ago Are Now Down 29%

Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Sequoia Financial Group Limited (ASX:SEQ) have tasted that bitter downside in the last year, as the share price dropped 29%. That contrasts poorly with the market return of 11%. On the bright side, the stock is actually up 10.0% in the last three years. The falls have accelerated recently, with the share price down 29% in the last three months.

View our latest analysis for Sequoia Financial Group

Given that Sequoia Financial Group only made minimal earnings in the last twelve months, we'll focus on revenue to gauge its business development. Generally speaking, we'd consider a stock like this alongside loss-making companies, simply because the quantum of the profit is so low. It would be hard to believe in a more profitable future without growing revenues.

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In the last year Sequoia Financial Group saw its revenue grow by 154%. That's well above most other pre-profit companies. Given the revenue growth, the share price drop of 29% seems quite harsh. Our sympathies to shareholders who are now underwater. Prima facie, revenue growth like that should be a good thing, so it's worth checking whether losses have stabilized. Our monkey brains haven't evolved to think exponentially, so humans do tend to underestimate companies that have exponential growth.

The graphic below shows how revenue and earnings have changed as management guided the business forward. If you want to see cashflow, you can click on the chart.

ASX:SEQ Income Statement, April 24th 2019
ASX:SEQ Income Statement, April 24th 2019

We consider it positive that insiders have made significant purchases in the last year. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. Dive deeper into the earnings by checking this interactive graph of Sequoia Financial Group's earnings, revenue and cash flow.

A Different Perspective

Over the last year, Sequoia Financial Group shareholders took a loss of 28%, including dividends. In contrast the market gained about 11%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Investors are up over three years, booking 3.7% per year, much better than the more recent returns. Sometimes when a good quality long term winner has a weak period, it's turns out to be an opportunity, but you really need to be sure that the quality is there. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Sequoia Financial Group by clicking this link.

Sequoia Financial Group is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.