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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Guangzhou Goaland Energy Conservation Tech (SZSE:300499). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Guangzhou Goaland Energy Conservation Tech's Improving Profits

In business, profits are a key measure of success; and share prices tend to reflect earnings per share (EPS) performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Guangzhou Goaland Energy Conservation Tech grew its EPS from CN¥0.16 to CN¥0.92, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future.

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. To cut to the chase Guangzhou Goaland Energy Conservation Tech's EBIT margins dropped last year, and so did its revenue. Shareholders will be hoping for a change in fortunes if they're looking for profit growth.

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.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Guangzhou Goaland Energy Conservation Tech's balance sheet strength, before getting too excited.

Are Guangzhou Goaland Energy Conservation Tech Insiders Aligned With All Shareholders?

It's a necessity that company leaders act in the best interest of shareholders and so insider investment always comes as a reassurance to the market. Guangzhou Goaland Energy Conservation Tech followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. Given insiders own a significant chunk of shares, currently valued at CN¥616m, they have plenty of motivation to push the business to succeed. Amounting to 16% of the outstanding shares, indicating that insiders are also significantly impacted by the decisions they make on the behalf of the business.

Is Guangzhou Goaland Energy Conservation Tech Worth Keeping An Eye On?

Guangzhou Goaland Energy Conservation Tech's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Guangzhou Goaland Energy Conservation Tech very closely. It is worth noting though that we have found 4 warning signs for Guangzhou Goaland Energy Conservation Tech (2 make us uncomfortable!) that you need to take into consideration.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of Chinese companies which have demonstrated growth backed by recent insider purchases.

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.