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 the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like L&K Engineering (Suzhou)Ltd (SHSE:603929). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

L&K Engineering (Suzhou)Ltd's Improving Profits

Over the last three years, L&K Engineering (Suzhou)Ltd 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. Impressively, L&K Engineering (Suzhou)Ltd's EPS catapulted from CN¥0.71 to CN¥1.34, over the last year. It's not often a company can achieve year-on-year growth of 89%.

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. The good news is that L&K Engineering (Suzhou)Ltd is growing revenues, and EBIT margins improved by 3.7 percentage points to 9.2%, over the last year. That's great to see, on both counts.

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.

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 L&K Engineering (Suzhou)Ltd's balance sheet strength, before getting too excited.

Are L&K Engineering (Suzhou)Ltd Insiders Aligned With All Shareholders?

It should give investors a sense of security owning shares in a company if insiders also own shares, creating a close alignment their interests. So it is good to see that L&K Engineering (Suzhou)Ltd insiders have a significant amount of capital invested in the stock. With a whopping CN¥409m worth of shares as a group, insiders have plenty riding on the company's success. That holding amounts to 9.1% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.

Should You Add L&K Engineering (Suzhou)Ltd To Your Watchlist?

L&K Engineering (Suzhou)Ltd's earnings have taken off in quite an impressive fashion. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching L&K Engineering (Suzhou)Ltd very closely. You still need to take note of risks, for example - L&K Engineering (Suzhou)Ltd has 1 warning sign we think you should be aware of.

Although L&K Engineering (Suzhou)Ltd 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 Chinese 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.