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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 Federal Agricultural Mortgage (NYSE:AGM). 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 Quickly Is Federal Agricultural Mortgage Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Federal Agricultural Mortgage has grown EPS by 18% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. Not all of Federal Agricultural Mortgage'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. EBIT margins for Federal Agricultural Mortgage remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 19% to US$358m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Federal Agricultural Mortgage's future EPS 100% free.

Are Federal Agricultural Mortgage Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. Shareholders will be pleased by the fact that insiders own Federal Agricultural Mortgage shares worth a considerable sum. As a matter of fact, their holding is valued at US$31m. That shows significant buy-in, and may indicate conviction in the business strategy. While their ownership only accounts for 1.5%, 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 Federal Agricultural Mortgage To Your Watchlist?

For growth investors, Federal Agricultural Mortgage's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Federal Agricultural Mortgage's continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. You still need to take note of risks, for example - Federal Agricultural Mortgage has 1 warning sign we think 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 the US 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