It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Sequoia Financial Group (ASX:SEQ). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Sequoia Financial Group with the means to add long-term value to shareholders.
How Fast Is Sequoia Financial Group Growing Its Earnings Per Share?
In the last three years Sequoia Financial Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Sequoia Financial Group's EPS catapulted from AU$0.027 to AU$0.048, over the last year. It's a rarity to see 79% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Our analysis has highlighted that Sequoia Financial Group's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Sequoia Financial Group maintained stable EBIT margins over the last year, all while growing revenue 52% to AU$122m. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.
Sequoia Financial Group isn't a huge company, given its market capitalisation of AU$79m. That makes it extra important to check on its balance sheet strength.
Are Sequoia Financial Group Insiders Aligned With All Shareholders?
Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.
It's nice to see that there have been no reports of any insiders selling shares in Sequoia Financial Group in the previous 12 months. So it's definitely nice that company insider Anthony Young bought AU$54k worth of shares at an average price of around AU$0.66. Purchases like this can help the investors understand the views of the management team; in which case they see some potential in Sequoia Financial Group.
The good news, alongside the insider buying, for Sequoia Financial Group bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold AU$26m worth of its stock. That's a lot of money, and no small incentive to work hard. As a percentage, this totals to 33% of the shares on issue for the business, an appreciable amount considering the market cap.
Is Sequoia Financial Group Worth Keeping An Eye On?
Sequoia Financial Group's earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bunch of shares, and one has been buying more. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Sequoia Financial Group deserves timely attention. We should say that we've discovered 3 warning signs for Sequoia Financial Group that you should be aware of before investing here.
Keen growth investors love to see insider buying. Thankfully, Sequoia Financial Group isn't the only one. You can see a a free list of them here.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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