Should You Be Adding Seeka (NZSE:SEK) To Your Watchlist Today?
It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.
If, on the other hand, you like companies that have revenue, and even earn profits, then you may well be interested in Seeka (NZSE:SEK). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. 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.
See our latest analysis for Seeka
How Fast Is Seeka Growing?
The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Seeka managed to grow EPS by 14% per year, over three years. That's a good rate of growth, if it can be sustained.
I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Seeka's EBIT margins were flat over the last year, revenue grew by a solid 6.1% to NZ$251m. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.
Since Seeka is no giant, with a market capitalization of NZ$190m, so you should definitely check its cash and debt before getting too excited about its prospects.
Are Seeka Insiders Aligned With All Shareholders?
Like that fresh smell in the air when the rains are coming, insider buying fills me with optimistic anticipation. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.
Not only did Seeka insiders refrain from selling stock during the year, but they also spent NZ$76k buying it. That's nice to see, because it suggests insiders are optimistic. Zooming in, we can see that the biggest insider purchase was by Chief Executive Officer Michael Franks for NZ$40k worth of shares, at about 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$32m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. That amounts to 17% of the company, demonstrating a degree of high-level alignment with shareholders.
Is Seeka Worth Keeping An Eye On?
One positive for Seeka is that it is growing EPS. That's nice to see. On top of that, we've seen insiders buying shares even though they already own plenty. To me, that all makes it well worth a spot on your watchlist, as well as continuing research. Even so, be aware that Seeka is showing 4 warning signs in our investment analysis , and 1 of those is concerning...
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Seeka, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. 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.
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