For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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 N1 Holdings (ASX:N1H). 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.

Check out our latest analysis for N1 Holdings

How Fast Is N1 Holdings Growing Its Earnings Per Share?

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. So for many budding investors, improving EPS is considered a good sign. It's an outstanding feat for N1 Holdings to have grown EPS from AU$0.0039 to AU$0.012 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. Could this be a sign that the business has reached an inflection point?

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. The music to the ears of N1 Holdings shareholders is that EBIT margins have grown from 61% to 70% in the last 12 months and revenues are on an upwards trend as well. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

Since N1 Holdings is no giant, with a market capitalisation of AU$10m, you should definitely check its cash and debt before getting too excited about its prospects.

Are N1 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. 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.

Not only did N1 Holdings insiders refrain from selling stock during the year, but they also spent AU$89k buying it. This is a good look for the company as it paints an optimistic picture for the future. It is also worth noting that it was Independent Non-Executive Director Frank Ganis who made the biggest single purchase, worth AU$40k, paying AU$0.16 per share.

And the insider buying isn't the only sign of alignment between shareholders and the board, since N1 Holdings insiders own more than a third of the company. Indeed, with a collective holding of 79%, company insiders are in control and have plenty of capital behind the venture. 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. Although, with N1 Holdings being valued at AU$10m, this is a small company we're talking about. So despite a large proportional holding, insiders only have AU$8.0m worth of stock. That might not be a huge sum but it should be enough to keep insiders motivated!

Does N1 Holdings Deserve A Spot On Your Watchlist?

N1 Holdings' earnings have taken off in quite an impressive fashion. To make matters even better, the company insiders who know the company best have put their faith in the its future and have been buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest N1 Holdings belongs near the top of your watchlist. It is worth noting though that we have found 4 warning signs for N1 Holdings (3 are concerning!) that you need to take into consideration.

Keen growth investors love to see insider activity. Thankfully, N1 Holdings isn't the only one. You can see a a curated list of Australian companies which have exhibited consistent growth accompanied by high insider ownership.

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.