Here's Why We Think HealthEquity (NASDAQ:HQY) Is Well Worth Watching

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. 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 HealthEquity (NASDAQ:HQY). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

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How Fast Is HealthEquity Growing Its Earnings Per Share?

HealthEquity 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. HealthEquity's EPS skyrocketed from US$0.94 to US$1.41, in just one year; a result that's bound to bring a smile to shareholders. That's a commendable gain of 50%.

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. The music to the ears of HealthEquity shareholders is that EBIT margins have grown from 14% to 20% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

See our latest analysis for HealthEquity

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for HealthEquity.

Are HealthEquity Insiders Aligned With All Shareholders?

Since HealthEquity has a market capitalisation of US$9.0b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. We note that their impressive stake in the company is worth US$156m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Does HealthEquity Deserve A Spot On Your Watchlist?

You can't deny that HealthEquity has grown its earnings per share at a very impressive rate. That's attractive. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. However, before you get too excited we've discovered 2 warning signs for HealthEquity that you should be aware of.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.