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 as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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 White Mountains Insurance Group (NYSE:WTM). 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.

See our latest analysis for White Mountains Insurance Group

White Mountains Insurance Group's Improving Profits

Over the last three years, White Mountains Insurance Group 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, White Mountains Insurance Group's EPS catapulted from US$98.07 to US$253, over the last year. It's a rarity to see 158% year-on-year growth like that. Shareholders will be hopeful that this is a sign of the company reaching an 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. Our analysis has highlighted that White Mountains Insurance Group's revenue from operations did not account for all of their revenue in the previous 12 months, so our analysis of its margins might not accurately reflect the underlying business. White Mountains Insurance Group shareholders can take confidence from the fact that EBIT margins are up from 23% to 35%, 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. To see the actual numbers, click on the chart.

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are White Mountains Insurance Group Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

One shining light for White Mountains Insurance Group is the serious outlay one insider has made to buy shares, in the last year. Indeed, Independent Chairman of the Board Weston Hicks has accumulated shares over the last year, paying a total of US$1.5m at an average price of about US$1,481. It doesn't get much better than that, in terms of large investments from insiders.

Along with the insider buying, another encouraging sign for White Mountains Insurance Group is that insiders, as a group, have a considerable shareholding. We note that their impressive stake in the company is worth US$149m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add White Mountains Insurance Group To Your Watchlist?

White Mountains Insurance Group's earnings have taken off in quite an impressive fashion. To sweeten the deal, insiders have significant skin in the game with one even acquiring more. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest White Mountains Insurance Group belongs near the top of your watchlist. Of course, just because White Mountains Insurance Group 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 White Mountains Insurance Group, you'll probably love this curated collection of companies in the US that have an attractive valuation alongside insider buying in the last three months.

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.