It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 Yixin Group (HKG:2858). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Yixin Group with the means to add long-term value to shareholders.

Yixin Group's Improving Profits

Over the last three years, Yixin Group has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Yixin Group's EPS skyrocketed from CN¥0.08 to CN¥0.11, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 33%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. It's noted that Yixin Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note Yixin Group achieved similar EBIT margins to last year, revenue grew by a solid 52% to CN¥7.2b. 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.

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

Are Yixin Group Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news for Yixin Group is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. In other words, the company insider, Ling Kay Tsang, acquired CN¥27m worth of shares over the previous 12 months at an average price of around CN¥0.60. Seeing such high conviction in the company is a huge positive for shareholders and should instil confidence in their mission.

The good news, alongside the insider buying, for Yixin Group bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold CN¥333m worth of its stock. That's a lot of money, and no small incentive to work hard. That amounts to 6.1% of the company, demonstrating a degree of high-level alignment with shareholders.

Should You Add Yixin Group To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Yixin Group's strong EPS growth. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. So it's fair to say that this stock may well deserve a spot on your watchlist. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Yixin Group (1 is significant) you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Yixin Group, you'll probably love this curated collection of companies in HK that have an attractive valuation alongside 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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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.