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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Guangzhou Kingmed Diagnostics Group (SHSE:603882). 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.

See our latest analysis for Guangzhou Kingmed Diagnostics Group

Guangzhou Kingmed Diagnostics Group's Improving Profits

Over the last three years, Guangzhou Kingmed Diagnostics Group 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. Guangzhou Kingmed Diagnostics Group's EPS has risen over the last 12 months, growing from CN¥4.39 to CN¥5.44. That's a 24% gain; respectable growth in the broader scheme of things.

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. Our analysis has highlighted that Guangzhou Kingmed Diagnostics Group's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. Guangzhou Kingmed Diagnostics Group maintained stable EBIT margins over the last year, all while growing revenue 39% to CN¥14b. That's encouraging news for the company!

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.

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

Are Guangzhou Kingmed Diagnostics Group Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CN¥36b company like Guangzhou Kingmed Diagnostics Group. But we do take comfort from the fact that they are investors in the company. Indeed, they have a considerable amount of wealth invested in it, currently valued at CN¥6.0b. Coming in at 17% of the business, that holding gives insiders a lot of influence, and plenty of reason to generate value for shareholders. Very encouraging.

Does Guangzhou Kingmed Diagnostics Group Deserve A Spot On Your Watchlist?

As previously touched on, Guangzhou Kingmed Diagnostics Group is a growing business, which is encouraging. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. That combination is very appealing. So yes, we do think the stock is worth keeping an eye on. However, before you get too excited we've discovered 2 warning signs for Guangzhou Kingmed Diagnostics Group (1 shouldn't be ignored!) that you should be aware of.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with 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.