Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.
So if you're like me, you might be more interested in profitable, growing companies, like Sequoia Financial Group (ASX:SEQ). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
How Quickly Is Sequoia Financial Group Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Sequoia Financial Group has grown EPS by 20% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.
I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). The good news is that Sequoia Financial Group is growing revenues, and EBIT margins improved by 3.8 percentage points to 5.2%, over the last year. Ticking those two boxes is a good sign of growth, in my book.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
Sequoia Financial Group isn't a huge company, given its market capitalization of AU$65m. That makes it extra important to check on its balance sheet strength.
Are Sequoia Financial Group Insiders Aligned With All Shareholders?
Like standing at the lookout, surveying the horizon at sunrise, insider buying, for some investors, sparks joy. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
In the last year insider at Sequoia Financial Group were both selling and buying shares; but happily, as a group they spent AU$251k more on stock, than they netted from selling it. Although I don't particularly like to see selling, the fact that they put more capital in, than they extracted, is a positive in my mind. It is also worth noting that it was Anthony Young who made the biggest single purchase, worth AU$239k, paying AU$0.20 per share.
On top of the insider buying, we can also see that Sequoia Financial Group insiders own a large chunk of the company. Actually, with 42% of the company to their names, insiders are profoundly invested in the business. I'm reassured by this kind of alignment, as it suggests the business will be run for the benefit of shareholders. With that sort of holding, insiders have about AU$28m riding on the stock, at current prices. That should be more than enough to keep them focussed on creating shareholder value!
Is Sequoia Financial Group Worth Keeping An Eye On?
You can't deny that Sequoia Financial Group has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. So it's fair to say I think this stock may well deserve a spot on your watchlist. However, before you get too excited we've discovered 3 warning signs for Sequoia Financial Group that you should be aware of.
As a growth investor I do like to see insider buying. But 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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