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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like Gree Electric Appliances of Zhuhai (SZSE:000651), which has not only revenues, but also profits. 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.

How Fast Is Gree Electric Appliances of Zhuhai Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Gree Electric Appliances of Zhuhai managed to grow EPS by 10.0% per year, over three years. That's a good rate of growth, if it can be sustained.

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. Not all of Gree Electric Appliances of Zhuhai'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. Gree Electric Appliances of Zhuhai maintained stable EBIT margins over the last year, all while growing revenue 8.3% to CN¥205b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Gree Electric Appliances of Zhuhai's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Gree Electric Appliances of Zhuhai Insiders Aligned With All Shareholders?

Since Gree Electric Appliances of Zhuhai has a market capitalisation of CN¥231b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth CN¥2.7b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Should You Add Gree Electric Appliances of Zhuhai To Your Watchlist?

One important encouraging feature of Gree Electric Appliances of Zhuhai is that it is growing profits. If that's not enough on its own, there is also the rather notable levels of insider ownership. The combination definitely favoured by investors so consider keeping the company on a watchlist. Don't forget that there may still be risks. For instance, we've identified 1 warning sign for Gree Electric Appliances of Zhuhai 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 CN 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.