Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

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 Shanghai Sunglow Packaging TechnologyLtd (SHSE:603499). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shanghai Sunglow Packaging TechnologyLtd with the means to add long-term value to shareholders.

Shanghai Sunglow Packaging TechnologyLtd's Improving Profits

Shanghai Sunglow Packaging TechnologyLtd has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. Thus, it makes sense to focus on more recent growth rates, instead. Shanghai Sunglow Packaging TechnologyLtd's EPS skyrocketed from CN¥0.094 to CN¥0.15, in just one year; a result that's bound to bring a smile to shareholders. That's a impressive gain of 61%.

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. Our analysis has highlighted that Shanghai Sunglow Packaging TechnologyLtd's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. The music to the ears of Shanghai Sunglow Packaging TechnologyLtd shareholders is that EBIT margins have grown from 4.1% to 6.9% 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. For finer detail, click on the image.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Shanghai Sunglow Packaging TechnologyLtd Insiders Aligned With All Shareholders?

Seeing insiders owning a large portion of the shares on issue is often a good sign. Their incentives will be aligned with the investors and there's less of a probability in a sudden sell-off that would impact the share price. So those who are interested in Shanghai Sunglow Packaging TechnologyLtd will be delighted to know that insiders have shown their belief, holding a large proportion of the company's shares. In fact, they own 54% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. That means they have plenty of their own capital riding on the performance of the business!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. The median total compensation for CEOs of companies similar in size to Shanghai Sunglow Packaging TechnologyLtd, with market caps between CN¥2.8b and CN¥11b, is around CN¥983k.

The Shanghai Sunglow Packaging TechnologyLtd CEO received CN¥628k in compensation for the year ending December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. 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.

Should You Add Shanghai Sunglow Packaging TechnologyLtd To Your Watchlist?

You can't deny that Shanghai Sunglow Packaging TechnologyLtd has grown its earnings per share at a very impressive rate. That's attractive. If you still have your doubts, remember too that company insiders have a considerable investment aligning themselves with the shareholders and CEO pay is quite modest compared to similarly sized companiess. The overarching message here is that Shanghai Sunglow Packaging TechnologyLtd has underlying strengths that make it worth a look at. We should say that we've discovered 1 warning sign for Shanghai Sunglow Packaging TechnologyLtd that you should be aware of before investing here.

Although Shanghai Sunglow Packaging TechnologyLtd certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

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.