Should You Be Adding Sequoia Financial Group (ASX:SEQ) To Your Watchlist Today?

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Sequoia Financial Group (ASX:SEQ). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Our analysis indicates that SEQ is potentially undervalued!

Sequoia Financial Group's Improving Profits

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. As a result, we'll zoom in on growth over the last year, instead. In impressive fashion, Sequoia Financial Group's EPS grew from AU$0.027 to AU$0.048, over the previous 12 months. It's not often a company can achieve year-on-year growth of 77%. That could be a sign that the business has reached a true 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. Not all of Sequoia Financial Group's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. EBIT margins for Sequoia Financial Group remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 52% to AU$122m. That's encouraging news for the company!

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$71m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Sequoia Financial Group Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that Sequoia Financial Group insiders have a significant amount of capital invested in the stock. To be specific, they have AU$23m worth of shares. 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.

Does Sequoia Financial Group Deserve A Spot On 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. Before you take the next step you should know about the 3 warning signs for Sequoia Financial Group that we have uncovered.

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.