The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Zhejiang Cfmoto PowerLtd (SHSE:603129). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Zhejiang Cfmoto PowerLtd with the means to add long-term value to shareholders.

How Quickly Is Zhejiang Cfmoto PowerLtd Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. That makes EPS growth an attractive quality for any company. Shareholders will be happy to know that Zhejiang Cfmoto PowerLtd's EPS has grown 33% each year, compound, over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. Not all of Zhejiang Cfmoto PowerLtd's revenue this year is revenue from operations, so keep in mind the revenue and margin numbers used in this article might not be the best representation of the underlying business. Zhejiang Cfmoto PowerLtd shareholders can take confidence from the fact that EBIT margins are up from 5.9% to 8.2%, and revenue is growing. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

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

Are Zhejiang Cfmoto PowerLtd 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. Shareholders will be pleased by the fact that insiders own Zhejiang Cfmoto PowerLtd shares worth a considerable sum. Notably, they have an enviable stake in the company, worth CN¥747m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations between CN¥14b and CN¥46b, like Zhejiang Cfmoto PowerLtd, the median CEO pay is around CN¥1.6m.

Zhejiang Cfmoto PowerLtd offered total compensation worth CN¥1.2m to its CEO in the year 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 Zhejiang Cfmoto PowerLtd To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Zhejiang Cfmoto PowerLtd's strong EPS growth. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. The overarching message here is that Zhejiang Cfmoto PowerLtd has underlying strengths that make it worth a look at. However, before you get too excited we've discovered 2 warning signs for Zhejiang Cfmoto PowerLtd (1 makes us a bit uncomfortable!) that you should be aware of.

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 tailored list of Chinese companies which have demonstrated growth backed by recent insider purchases.

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.