Do Zhongji Innolight's (SZSE:300308) Earnings Warrant Your Attention?

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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Zhongji Innolight (SZSE:300308). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Zhongji Innolight

How Fast Is Zhongji Innolight Growing Its Earnings Per Share?

Zhongji Innolight has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Outstandingly, Zhongji Innolight's EPS shot from CN¥1.55 to CN¥4.19, over the last year. It's a rarity to see 171% year-on-year growth like that. The best case scenario? That the business has hit a true inflection point.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. The music to the ears of Zhongji Innolight shareholders is that EBIT margins have grown from 18% to 24% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

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

Are Zhongji Innolight Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a CN¥151b company like Zhongji Innolight. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth CN¥11b. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Should You Add Zhongji Innolight To Your Watchlist?

Zhongji Innolight's earnings per share growth have been climbing higher at an appreciable rate. That sort of growth is nothing short of eye-catching, and the large investment held by insiders should certainly brighten the view of the company. At times fast EPS growth is a sign the business has reached an inflection point, so there's a potential opportunity to be had here. So at the surface level, Zhongji Innolight is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. However, before you get too excited we've discovered 2 warning signs for Zhongji Innolight (1 is concerning!) that you should be aware of.

Although Zhongji Innolight certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of Chinese companies that not only boast of strong growth but have strong insider backing.

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.