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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 Suzhou TFC Optical Communication (SZSE:300394). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

Suzhou TFC Optical Communication's Improving Profits

Over the last three years, Suzhou TFC Optical Communication has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. In impressive fashion, Suzhou TFC Optical Communication's EPS grew from CN¥1.02 to CN¥2.29, over the previous 12 months. It's a rarity to see 123% year-on-year growth like that. 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. The good news is that Suzhou TFC Optical Communication is growing revenues, and EBIT margins improved by 6.9 percentage points to 44%, over the last year. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Suzhou TFC Optical Communication.

Are Suzhou TFC Optical Communication Insiders Aligned With All Shareholders?

Since Suzhou TFC Optical Communication has a market capitalisation of CN¥53b, we wouldn't expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth CN¥4.8b. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It means a lot to see insiders invested in the business, but shareholders may be wondering if remuneration policies are in their best interest. A brief analysis of the CEO compensation suggests they are. For companies with market capitalisations between CN¥29b and CN¥88b, like Suzhou TFC Optical Communication, the median CEO pay is around CN¥1.8m.

Suzhou TFC Optical Communication offered total compensation worth CN¥1.4m to its CEO in the year to December 2023. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Is Suzhou TFC Optical Communication Worth Keeping An Eye On?

Suzhou TFC Optical Communication's earnings per share growth have been climbing higher at an appreciable rate. The cherry on top is that insiders own a bucket-load of shares, and the CEO pay seems really quite reasonable. The drastic earnings growth indicates the business is going from strength to strength. Hopefully a trend that continues well into the future. Suzhou TFC Optical Communication certainly ticks a few boxes, so we think it's probably well worth further consideration. What about risks? Every company has them, and we've spotted 2 warning signs for Suzhou TFC Optical Communication (of which 1 is potentially serious!) you should know about.

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 CN 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.