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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Yixin Group (HKG:2858). 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.

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Yixin Group's Improving Profits

In the last three years Yixin Group's earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Yixin Group's EPS shot up from CN¥0.086 to CN¥0.12; a result that's bound to keep shareholders happy. That's a fantastic gain of 38%.

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. It's noted that Yixin Group's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. Yixin Group maintained stable EBIT margins over the last year, all while growing revenue 40% to CN¥8.2b. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

See our latest analysis for Yixin Group

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Yixin Group?

Are Yixin Group Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

The good news for Yixin Group is that one insider has illustrated their belief in the company's future with a huge purchase of shares in the last 12 months. Indeed, Executive Vice Chairman of the Board Ling Kay Tsang has accumulated shares over the last year, paying a total of CN¥27m at an average price of about CN¥0.60. Big insider buys like that are a rarity and should prompt discussion on the merits of the business.

Along with the insider buying, another encouraging sign for Yixin Group is that insiders, as a group, have a considerable shareholding. We note that their impressive stake in the company is worth CN¥1.6b. Holders should find this level of insider commitment quite encouraging, since it would ensure that the leaders of the company would also experience their success, or failure, with the stock.

Should You Add Yixin Group To Your Watchlist?

For growth investors, Yixin Group's raw rate of earnings growth is a beacon in the night. Moreover, the management and board of the company hold a significant stake in the company, with one party adding to this total. These things considered, this is one stock worth watching. It is worth noting though that we have found 2 warning signs for Yixin Group (1 is significant!) that you need to take into consideration.

The good news is that Yixin Group is not the only stock with insider buying. Here's a list of small cap, undervalued companies in HK with insider buying in the last three months!

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

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.