For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
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). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.
How Fast Is Sequoia Financial Group Growing Its Earnings Per Share?
Sequoia Financial Group has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. 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 77% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an inflection point.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Sequoia Financial Group achieved similar EBIT margins to last year, revenue grew by a solid 49% to AU$143m. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
Since Sequoia Financial Group is no giant, with a market capitalisation of AU$76m, you should definitely check its cash and debt before getting too excited about its prospects.
Are Sequoia Financial Group Insiders Aligned With All Shareholders?
Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So those who are interested in Sequoia Financial Group will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. Owning 36% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. In terms of absolute value, insiders have AU$28m invested in the business, at the current share price. So there's plenty there to keep them focused!
Should You Add Sequoia Financial Group To Your Watchlist?
Sequoia Financial Group's earnings have taken off in quite an impressive fashion. This level of EPS growth does wonders for attracting investment, and the large insider investment in the company is just the cherry on top. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So based on this quick analysis, we do think it's worth considering Sequoia Financial Group for a spot on your watchlist. Still, you should learn about the 2 warning signs we've spotted with Sequoia Financial Group.
Although Sequoia Financial Group certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see insider buying, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
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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