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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. 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 Ningxia Zhongyin Cashmere (SZSE:000982). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Ningxia Zhongyin Cashmere's Improving Profits

In the last three years Ningxia Zhongyin Cashmere's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Ningxia Zhongyin Cashmere has grown its trailing twelve month EPS from CN¥0.0023 to CN¥0.0024, in the last year. That's a modest gain of 7.4%.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. It's noted that Ningxia Zhongyin Cashmere's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. The good news is that Ningxia Zhongyin Cashmere is growing revenues, and EBIT margins improved by 2.3 percentage points to 1.0%, over the last year. That's great to see, on both counts.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

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 Ningxia Zhongyin Cashmere's balance sheet strength, before getting too excited.

Are Ningxia Zhongyin Cashmere Insiders Aligned With All Shareholders?

It's a good habit to check into a company's remuneration policies to ensure that the CEO and management team aren't putting their own interests before that of the shareholder with excessive salary packages. Our analysis has discovered that the median total compensation for the CEOs of companies like Ningxia Zhongyin Cashmere with market caps between CN¥2.8b and CN¥11b is about CN¥996k.

Ningxia Zhongyin Cashmere's CEO took home a total compensation package worth CN¥892k in the year leading up to December 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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. It can also be a sign of good governance, more generally.

Should You Add Ningxia Zhongyin Cashmere To Your Watchlist?

One positive for Ningxia Zhongyin Cashmere is that it is growing EPS. That's nice to see. On top of that, our faith in the board of directors is strengthened by the fact of the reasonable CEO pay. So all in all Ningxia Zhongyin Cashmere is worthy at least considering for your watchlist. We should say that we've discovered 1 warning sign for Ningxia Zhongyin Cashmere that you should be aware of before investing here.

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.