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.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Jiangxi Guotai GroupLtd (SHSE:603977). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Jiangxi Guotai GroupLtd with the means to add long-term value to shareholders.

How Quickly Is Jiangxi Guotai GroupLtd Increasing Earnings Per Share?

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. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Over the last three years, Jiangxi Guotai GroupLtd has grown EPS by 9.4% per year. That's a pretty good rate, if the company can sustain it.

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 Jiangxi Guotai GroupLtd's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. EBIT margins for Jiangxi Guotai GroupLtd remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 16% to CN¥2.6b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

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

Are Jiangxi Guotai GroupLtd Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Jiangxi Guotai GroupLtd insiders have a significant amount of capital invested in the stock. As a matter of fact, their holding is valued at CN¥105m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 1.8%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Should You Add Jiangxi Guotai GroupLtd To Your Watchlist?

One important encouraging feature of Jiangxi Guotai GroupLtd is that it is growing profits. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. These two factors are a huge highlight for the company which should be a strong contender your watchlists. Even so, be aware that Jiangxi Guotai GroupLtd is showing 1 warning sign in our investment analysis , you should know about...

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com