It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Yuanda China Holdings (HKG:2789). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.

View our latest analysis for Yuanda China Holdings

Yuanda China Holdings's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That means EPS growth is considered a real positive by most successful long-term investors. I, for one, am blown away by the fact that Yuanda China Holdings has grown EPS by 46% per year, over the last three years. While that sort of growth rate isn't sustainable for long, it certainly catches my attention; like a crow with a sparkly stone.

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. While Yuanda China Holdings may have maintained EBIT margins over the last year, revenue has fallen. And that does make me a little more cautious of the stock.

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

Yuanda China Holdings isn't a huge company, given its market capitalization of HK$646m. That makes it extra important to check on its balance sheet strength.

Are Yuanda China Holdings Insiders Aligned With All Shareholders?

Like the kids in the streets standing up for their beliefs, insider share purchases give me reason to believe in a brighter future. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The first bit of good news is that no Yuanda China Holdings insiders reported share sales in the last twelve months. But the really good news is that Founder & Chairman Baohua Kang spent CN¥5.6m buying stock stock, at an average price of around CN¥0.098. Big buys like that give me a sense of opportunity; actions speak louder than words.

On top of the insider buying, we can also see that Yuanda China Holdings insiders own a large chunk of the company. In fact, they own 59% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. To me this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. In terms of absolute value, insiders have CN¥379m invested in the business, using the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Is Yuanda China Holdings Worth Keeping An Eye On?

Yuanda China Holdings's earnings have taken off like any random crypto-currency did, back in 2017. The incing on the cake is that insiders own a large chunk of the company and one has even been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Yuanda China Holdings deserves timely attention. Of course, just because Yuanda China Holdings is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Yuanda China Holdings, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.