Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone 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.

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 Jiangsu Lopal Tech (SHSE:603906). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Jiangsu Lopal Tech with the means to add long-term value to shareholders.

View our latest analysis for Jiangsu Lopal Tech

How Fast Is Jiangsu Lopal Tech Growing Its Earnings Per Share?

Over the last three years, Jiangsu Lopal Tech 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, Jiangsu Lopal Tech's EPS grew from CN¥0.57 to CN¥1.13, over the previous 12 months. It's a rarity to see 97% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

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. It's noted that, last year, Jiangsu Lopal Tech's revenue from operations was lower than its revenue, so that could distort our analysis of its margins. While we note Jiangsu Lopal Tech achieved similar EBIT margins to last year, revenue grew by a solid 271% to CN¥8.8b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

While it's always good to see growing profits, you should always remember that a weak balance sheet could come back to bite. So check Jiangsu Lopal Tech's balance sheet strength, before getting too excited.

Are Jiangsu Lopal Tech Insiders Aligned With All Shareholders?

Many consider high insider ownership to be a strong sign of alignment between the leaders of a company and the ordinary shareholders. So we're pleased to report that Jiangsu Lopal Tech insiders own a meaningful share of the business. Actually, with 42% of the company to their names, insiders are profoundly invested in the business. 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. CN¥6.3b That level of investment from insiders is nothing to sneeze at.

Is Jiangsu Lopal Tech Worth Keeping An Eye On?

Jiangsu Lopal Tech's earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Jiangsu Lopal Tech is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Jiangsu Lopal Tech (at least 1 which is a bit concerning) , and understanding these should be part of your investment process.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

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.