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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. 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 X Financial (NYSE:XYF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide X Financial with the means to add long-term value to shareholders.

See our latest analysis for X Financial

How Fast Is X Financial Growing?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. X Financial's shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 55%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

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. It's noted that X Financial's revenue from operations was lower than its revenue in the last twelve months, so that could distort our analysis of its margins. While we note X Financial achieved similar EBIT margins to last year, revenue grew by a solid 27% to CN¥5.2b. That's progress.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Since X Financial is no giant, with a market capitalisation of US$247m, you should definitely check its cash and debt before getting too excited about its prospects.

Are X Financial Insiders Aligned With All Shareholders?

Theory would suggest that it's an encouraging sign to see high insider ownership of a company, since it ties company performance directly to the financial success of its management. So we're pleased to report that X Financial insiders own a meaningful share of the business. In fact, they own 52% of the company, so they will share in the same delights and challenges experienced by the ordinary shareholders. Intuition will tell you this is a good sign because it suggests they will be incentivised to build value for shareholders over the long term. To give you an idea, the value of insiders' holdings in the business are valued at CN¥130m at the current share price. So there's plenty there to keep them focused!

Does X Financial Deserve A Spot On Your Watchlist?

X Financial's earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, X Financial is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. Even so, be aware that X Financial is showing 2 warning signs in our investment analysis , you should know about...

Although X Financial 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 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.