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. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 EZZ Life Science Holdings (ASX:EZZ). 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 EZZ Life Science Holdings

How Quickly Is EZZ Life Science Holdings Increasing Earnings Per Share?

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. That makes EPS growth an attractive quality for any company. It certainly is nice to see that EZZ Life Science Holdings has managed to grow EPS by 35% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EZZ Life Science Holdings shareholders can take confidence from the fact that EBIT margins are up from 12% to 15%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

Since EZZ Life Science Holdings is no giant, with a market capitalisation of AU$94m, you should definitely check its cash and debt before getting too excited about its prospects.

Are EZZ Life Science Holdings 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

With strong conviction, EZZ Life Science Holdings insiders have stood united by refusing to sell shares over the last year. But the bigger deal is that the Co-founder, Mark Qin, paid AU$246k to buy shares at an average price of AU$2.71. Strong buying like that could be a sign of opportunity.

And the insider buying isn't the only sign of alignment between shareholders and the board, since EZZ Life Science Holdings insiders own more than a third of the company. Owning 36% of the company, insiders have plenty riding on the performance of the the share price. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. To give you an idea, the value of insiders' holdings in the business are valued at AU$34m at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because EZZ Life Science Holdings' CEO, Qizhou Qin, is paid at a relatively modest level when compared to other CEOs for companies of this size. Our analysis has discovered that the median total compensation for the CEOs of companies like EZZ Life Science Holdings with market caps under AU$314m is about AU$452k.

The CEO of EZZ Life Science Holdings only received AU$211k in total compensation for the year ending June 2024. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add EZZ Life Science Holdings To Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into EZZ Life Science Holdings' strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. So it's fair to say that this stock may well deserve a spot on your watchlist. We should say that we've discovered 2 warning signs for EZZ Life Science Holdings (1 is concerning!) that you should be aware of before investing here.

The good news is that EZZ Life Science Holdings is not the only stock with insider buying. Here's a list of small cap, undervalued companies in AU 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.

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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.