For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. 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. 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.

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 Yili Chuanning BiotechnologyLtd (SZSE:301301). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Yili Chuanning BiotechnologyLtd's Improving Profits

In the last three years Yili Chuanning BiotechnologyLtd's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Yili Chuanning BiotechnologyLtd's EPS grew from CN¥0.27 to CN¥0.59, over the previous 12 months. Year on year growth of 115% is certainly a sight to behold. The best case scenario? That the business has hit a true inflection point.

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. Not all of Yili Chuanning BiotechnologyLtd'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. The music to the ears of Yili Chuanning BiotechnologyLtd shareholders is that EBIT margins have grown from 20% to 29% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

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 Yili Chuanning BiotechnologyLtd's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Yili Chuanning BiotechnologyLtd Insiders Aligned With All Shareholders?

It's a good habit to check into a company's remuneration policies to ensure that the CEO and management team aren't putting their own interests before that of the shareholder with excessive salary packages. The median total compensation for CEOs of companies similar in size to Yili Chuanning BiotechnologyLtd, with market caps between CN¥14b and CN¥45b, is around CN¥1.7m.

Yili Chuanning BiotechnologyLtd's CEO took home a total compensation package worth CN¥1.4m in the year leading up to December 2023. That is actually below the median for CEO's of similarly sized companies. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does Yili Chuanning BiotechnologyLtd Deserve A Spot On Your Watchlist?

Yili Chuanning BiotechnologyLtd's earnings per share growth have been climbing higher at an appreciable rate. This appreciable increase in earnings could be a sign of an upward trajectory for the company. What's more, the fact that the CEO's compensation is quite reasonable is a sign that the company is conscious of excessive spending. So Yili Chuanning BiotechnologyLtd looks like it could be a good quality growth stock, at first glance. That's worth watching. Even so, be aware that Yili Chuanning BiotechnologyLtd is showing 1 warning sign in our investment analysis , you should know about...

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 significant insider holdings.

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.