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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Gansu Yasheng Industrial (Group) (SHSE:600108). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Gansu Yasheng Industrial (Group)'s Improving Profits

In the last three years Gansu Yasheng Industrial (Group)'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. Thus, it makes sense to focus on more recent growth rates, instead. Gansu Yasheng Industrial (Group) boosted its trailing twelve month EPS from CN¥0.041 to CN¥0.048, in the last year. That's a 17% gain; respectable growth in the broader scheme of things.

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. Gansu Yasheng Industrial (Group) maintained stable EBIT margins over the last year, all while growing revenue 8.0% to CN¥4.0b. That's a real positive.

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 Gansu Yasheng Industrial (Group) Insiders Aligned With All Shareholders?

Prior to investment, it's always a good idea to check that the management team is paid reasonably. Pay levels around or below the median, can be a sign that shareholder interests are well considered. The median total compensation for CEOs of companies similar in size to Gansu Yasheng Industrial (Group), with market caps between CN¥2.9b and CN¥12b, is around CN¥971k.

The Gansu Yasheng Industrial (Group) CEO received total compensation of only CN¥24k in the year to December 2023. This total may indicate that the CEO is sacrificing take home pay for performance-based benefits, ensuring that their motivations are synonymous with strong company results. 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 Gansu Yasheng Industrial (Group) Deserve A Spot On Your Watchlist?

As previously touched on, Gansu Yasheng Industrial (Group) is a growing business, which is encouraging. To add to this, the modest CEO compensation should tell investors that the directors have an active interest in delivering the best for shareholders. So based on its merits, the stock deserves further research, if not an addition to your watchlist. You still need to take note of risks, for example - Gansu Yasheng Industrial (Group) has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about.

Although Gansu Yasheng Industrial (Group) 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.