Does Seeka (NZSE:SEK) Deserve A Spot On Your Watchlist?

By
Simply Wall St
Published
April 06, 2021
NZSE:SEK
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. 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 Seeka (NZSE:SEK). While profit is not necessarily a social good, it's easy to admire a business that can consistently produce it. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Seeka

Seeka's Earnings Per Share Are Growing.

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Over the last three years, Seeka has grown EPS by 14% per year. That's a good rate of growth, if it can be sustained.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Seeka maintained stable EBIT margins over the last year, all while growing revenue 6.1% to NZ$251m. 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.

earnings-and-revenue-history
NZSE:SEK Earnings and Revenue History April 6th 2021

Seeka isn't a huge company, given its market capitalization of NZ$144m. That makes it extra important to check on its balance sheet strength.

Are Seeka 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

We note that Seeka insiders spent NZ$76k on stock, over the last year; in contrast, we didn't see any selling. That puts the company in a nice light, as it makes me think its leaders are feeling confident. It is also worth noting that it was Chief Executive Officer Michael Franks who made the biggest single purchase, worth NZ$40k, paying NZ$4.04 per share.

The good news, alongside the insider buying, for Seeka bulls is that insiders (collectively) have a meaningful investment in the stock. To be specific, they have NZ$31m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Those holdings account for over 21% of the company; visible skin in the game.

Does Seeka Deserve A Spot On Your Watchlist?

One important encouraging feature of Seeka is that it is growing profits. Better yet, insiders are significant shareholders, and have been buying more shares. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Seeka (at least 2 which are a bit unpleasant) , and understanding them should be part of your investment process.

The good news is that Seeka is not the only growth stock with insider buying. Here's a list of them... with insider buying in the last three months!

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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