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 are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Heritage Insurance Holdings (NYSE:HRTG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Heritage Insurance Holdings with the means to add long-term value to shareholders.

Check out our latest analysis for Heritage Insurance Holdings

Heritage Insurance Holdings' Improving Profits

In the last three years Heritage Insurance Holdings' earnings per share took off; so much so that it's a bit disingenuous to use these figures to try and deduce long term estimates. Thus, it makes sense to focus on more recent growth rates, instead. Impressively, Heritage Insurance Holdings' EPS catapulted from US$1.04 to US$2.48, over the last year. Year on year growth of 139% is certainly a sight to behold.

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 Heritage Insurance Holdings shareholders is that EBIT margins have grown from 5.9% to 12% in the last 12 months and revenues are on an upwards trend as well. Ticking those two boxes is a good sign of growth, in our book.

You can take a look at the company's revenue and earnings growth trend, in the chart below. To see the actual numbers, click on the chart.

Of course the knack is to find stocks that have their best days in the future, not in the past. You could base your opinion on past performance, of course, but you may also want to check this interactive graph of professional analyst EPS forecasts for Heritage Insurance Holdings.

Are Heritage Insurance Holdings 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. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Although we did see some insider selling (worth US$223k) this was overshadowed by a mountain of buying, totalling US$2.4m in just one year. This bodes well for Heritage Insurance Holdings as it highlights the fact that those who are important to the company having a lot of faith in its future. We also note that it was the company insider, Raymond Hyer, who made the biggest single acquisition, paying US$1m for shares at about US$6.75 each.

On top of the insider buying, it's good to see that Heritage Insurance Holdings insiders have a valuable investment in the business. Given insiders own a significant chunk of shares, currently valued at US$89m, they have plenty of motivation to push the business to succeed. That holding amounts to 25% of the stock on issue, thus making insiders influential owners of the business and aligned with the interests of shareholders.

Should You Add Heritage Insurance Holdings To Your Watchlist?

Heritage Insurance Holdings' earnings have taken off in quite an impressive fashion. Just as heartening; insiders both own and are buying more stock. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest Heritage Insurance Holdings belongs near the top of your watchlist. We don't want to rain on the parade too much, but we did also find 3 warning signs for Heritage Insurance Holdings that you need to be mindful of.

The good news is that Heritage Insurance Holdings is not the only stock with insider buying. Here's a list of small cap, undervalued companies in the US 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.