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. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. 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 Cadence Design Systems (NASDAQ:CDNS). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Cadence Design Systems with the means to add long-term value to shareholders.

See our latest analysis for Cadence Design Systems

How Quickly Is Cadence Design Systems Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Cadence Design Systems grew its EPS by 14% per year. That's a good rate of growth, if it can be sustained.

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. While we note Cadence Design Systems achieved similar EBIT margins to last year, revenue grew by a solid 11% to US$4.4b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Cadence Design Systems' future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Cadence Design Systems Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$83b company like Cadence Design Systems. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth US$681m. While that is a lot of skin in the game, we note this holding only totals to 0.8% of the business, which is a result of the company being so large. So despite their percentage holding being low, company management still have plenty of reasons to deliver the best outcomes for investors.

Is Cadence Design Systems Worth Keeping An Eye On?

One positive for Cadence Design Systems is that it is growing EPS. That's nice to see. For those who are looking for a little more than this, the high level of insider ownership enhances our enthusiasm for this growth. The combination definitely favoured by investors so consider keeping the company on a watchlist. Of course, profit growth is one thing but it's even better if Cadence Design Systems is receiving high returns on equity, since that should imply it can keep growing without much need for capital. Click on this link to see how it is faring against the average in its industry.

While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.

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.