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. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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 Runda Medical Technology (SHSE:603108). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Shanghai Runda Medical Technology with the means to add long-term value to shareholders.

View our latest analysis for Shanghai Runda Medical Technology

Shanghai Runda Medical Technology's Earnings Per Share Are Growing

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. It certainly is nice to see that Shanghai Runda Medical Technology has managed to grow EPS by 21% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. EBIT margins for Shanghai Runda Medical Technology remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 9.3% to CN¥10b. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Shanghai Runda Medical Technology's balance sheet strength, before getting too excited.

Are Shanghai Runda Medical 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. Shanghai Runda Medical Technology followers will find comfort in knowing that insiders have a significant amount of capital that aligns their best interests with the wider shareholder group. We note that their impressive stake in the company is worth CN¥1.7b. This totals to 21% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

Is Shanghai Runda Medical Technology Worth Keeping An Eye On?

For growth investors, Shanghai Runda Medical Technology's raw rate of earnings growth is a beacon in the night. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Shanghai Runda Medical Technology's continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Even so, be aware that Shanghai Runda Medical Technology is showing 3 warning signs in our investment analysis , and 2 of those can't be ignored...

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.