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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Rambus (NASDAQ:RMBS). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

How Fast Is Rambus Growing Its Earnings Per Share?

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. So for many budding investors, improving EPS is considered a good sign. Commendations have to be given in seeing that Rambus grew its EPS from US$0.51 to US$3.37, in one short year. When you see earnings grow that quickly, it often means good things ahead for the company.

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. This approach makes Rambus look pretty good, on balance; although revenue is flattish, EBIT margins improved from 17% to 24% in the last year. That's something to smile about.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Rambus' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Rambus Insiders Aligned With All Shareholders?

Owing to the size of Rambus, we wouldn't expect insiders to hold a significant proportion of the company. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. To be specific, they have US$34m worth of shares. That shows significant buy-in, and may indicate conviction in the business strategy. Despite being just 0.6% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

Is Rambus Worth Keeping An Eye On?

Rambus' earnings per share have been soaring, with growth rates sky high. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So based on this quick analysis, we do think it's worth considering Rambus for a spot on your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Rambus , and understanding these should be part of your investment process.

Although Rambus 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 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.