It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. 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 can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Po Valley Energy (ASX:PVE). 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.

We've discovered 2 warning signs about Po Valley Energy. View them for free.

Po Valley Energy's Improving Profits

Strong earnings per share (EPS) results are an indicator of a company achieving solid profits, which investors look upon favourably and so the share price tends to reflect great EPS performance. Which is why EPS growth is looked upon so favourably. Commendations have to be given in seeing that Po Valley Energy grew its EPS from €0.00051 to €0.0021, in one short year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. But the key is discerning whether something profound has changed, or if this is a just a one-off boost.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Po Valley Energy is growing revenues, and EBIT margins improved by 16.6 percentage points to 52%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

See our latest analysis for Po Valley Energy

Po Valley Energy isn't a huge company, given its market capitalisation of AU$52m. That makes it extra important to check on its balance sheet strength.

Are Po Valley Energy 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite some Po Valley Energy insiders disposing of some shares, we note that there was €312k more in buying interest among those who know the company best Shareholders who may have questioned insiders selling will find some reassurance in this fact. It is also worth noting that it was Chairman Kevin Bailey who made the biggest single purchase, worth AU$258k, paying AU$0.035 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Po Valley Energy insiders own more than a third of the company. Indeed, with a collective holding of 55%, company insiders are in control and have plenty of capital behind the venture. This should be seen as a good thing, as it means insiders have a personal interest in delivering the best outcomes for shareholders. To give you an idea, the value of insiders' holdings in the business are valued at €29m at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

Should You Add Po Valley Energy To Your Watchlist?

Po Valley Energy's earnings per share have been soaring, with growth rates sky high. What's more, insiders own a significant stake in the company and have been buying more shares. This quick rundown suggests that the business may be of good quality, and also at an inflection point, so maybe Po Valley Energy deserves timely attention. We should say that we've discovered 2 warning signs for Po Valley Energy that you should be aware of before investing here.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Po Valley Energy, you'll probably love this curated collection of companies in AU 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.

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.