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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.
See our latest analysis for Sequoia Financial Group
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!