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 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 Churchill Downs (NASDAQ:CHDN). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Churchill Downs with the means to add long-term value to shareholders.

How Quickly Is Churchill Downs Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Churchill Downs has managed to grow EPS by 25% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. The music to the ears of Churchill Downs shareholders is that EBIT margins have grown from 24% to 26% 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.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Churchill Downs' forecast profits?

Are Churchill Downs Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

First and foremost; there we saw no insiders sell Churchill Downs shares in the last year. But the really good news is that Independent Director Paul Varga spent US$495k buying stock, at an average price of around US$130. Purchases like this can offer an insight into the faith of the company's management - and it seems to be all positive.

On top of the insider buying, it's good to see that Churchill Downs insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth US$391m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Does Churchill Downs Deserve A Spot On Your Watchlist?

You can't deny that Churchill Downs has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant piece of the pie when it comes to the company's stock, and one has been buying more. Astute investors will want to keep this stock on watch. Still, you should learn about the 1 warning sign we've spotted with Churchill Downs.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Churchill Downs, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside insider buying in the last three months.

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.