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. 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. 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 Shanghai Huace Navigation Technology (SZSE:300627). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

How Fast Is Shanghai Huace Navigation Technology Growing?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That means EPS growth is considered a real positive by most successful long-term investors. Impressively, Shanghai Huace Navigation Technology has grown EPS by 26% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

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 music to the ears of Shanghai Huace Navigation Technology shareholders is that EBIT margins have grown from 11% to 17% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Shanghai Huace Navigation Technology's future profits.

Are Shanghai Huace Navigation Technology Insiders Aligned With All Shareholders?

It's pleasing to see company leaders with putting their money on the line, so to speak, because it increases alignment of incentives between the people running the business, and its true owners. So it is good to see that Shanghai Huace Navigation Technology insiders have a significant amount of capital invested in the stock. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥3.8b. This totals to 27% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Well, based on the CEO pay, you'd argue that they are indeed. For companies with market capitalisations between CN¥7.2b and CN¥23b, like Shanghai Huace Navigation Technology, the median CEO pay is around CN¥1.2m.

Shanghai Huace Navigation Technology's CEO took home a total compensation package worth CN¥777k in the year leading up to December 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Should You Add Shanghai Huace Navigation Technology To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Shanghai Huace Navigation Technology's strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. This may only be a fast rundown, but the key takeaway is that Shanghai Huace Navigation Technology is worth keeping an eye on. However, before you get too excited we've discovered 1 warning sign for Shanghai Huace Navigation Technology that you should be aware of.

Although Shanghai Huace Navigation Technology certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with insider buying, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have also seen recent insider buying..

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.