The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 Zhenjiang Dongfang Electric Heating TechnologyLtd (SZSE:300217). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Zhenjiang Dongfang Electric Heating TechnologyLtd with the means to add long-term value to shareholders.

How Fast Is Zhenjiang Dongfang Electric Heating TechnologyLtd Growing Its Earnings Per Share?

Zhenjiang Dongfang Electric Heating 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. Impressively, Zhenjiang Dongfang Electric Heating TechnologyLtd's EPS catapulted from CN¥0.21 to CN¥0.45, over the last year. It's a rarity to see 113% year-on-year growth like that.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Zhenjiang Dongfang Electric Heating TechnologyLtd shareholders can take confidence from the fact that EBIT margins are up from 7.8% to 20%, and revenue is growing. 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. Click on the chart to see the exact numbers.

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 Zhenjiang Dongfang Electric Heating TechnologyLtd's future profits.

Are Zhenjiang Dongfang Electric Heating TechnologyLtd Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So as you can imagine, the fact that Zhenjiang Dongfang Electric Heating TechnologyLtd insiders own a significant number of shares certainly is appealing. In fact, they own 36% of the shares, making insiders a very influential shareholder group. Those who are comforted by solid insider ownership like this should be happy, as it implies that those running the business are genuinely motivated to create shareholder value. And their holding is extremely valuable at the current share price, totalling CN¥2.5b. This is an incredible endorsement from them.

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. A brief analysis of the CEO compensation suggests they are. The median total compensation for CEOs of companies similar in size to Zhenjiang Dongfang Electric Heating TechnologyLtd, with market caps between CN¥2.9b and CN¥12b, is around CN¥945k.

The Zhenjiang Dongfang Electric Heating TechnologyLtd CEO received CN¥600k in compensation for the year ending December 2022. That is actually below the median for CEO's of similarly sized companies. 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 Zhenjiang Dongfang Electric Heating TechnologyLtd Deserve A Spot On Your Watchlist?

Zhenjiang Dongfang Electric Heating TechnologyLtd's earnings have taken off in quite an impressive fashion. An added bonus for those interested is that management hold a heap of stock and the CEO pay is quite reasonable, illustrating good cash management. The strong EPS improvement suggests the businesses is humming along. Zhenjiang Dongfang Electric Heating TechnologyLtd certainly ticks a few boxes, so we think it's probably well worth further consideration. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Zhenjiang Dongfang Electric Heating TechnologyLtd is trading on a high P/E or a low P/E, relative to its industry.

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.