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. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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 Virscend Education (HKG:1565). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

We've discovered 4 warning signs about Virscend Education. View them for free.

Virscend Education's Improving Profits

Virscend Education has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. As a result, we'll zoom in on growth over the last year, instead. To the delight of shareholders, Virscend Education's EPS soared from CN¥0.011 to CN¥0.015, over the last year. That's a fantastic gain of 37%.

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. Virscend Education maintained stable EBIT margins over the last year, all while growing revenue 25% to CN¥955m. That's a real positive.

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.

Check out our latest analysis for Virscend Education

Virscend Education isn't a huge company, given its market capitalisation of HK$673m. That makes it extra important to check on its balance sheet strength.

Are Virscend Education 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. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

It's nice to see that there have been no reports of any insiders selling shares in Virscend Education in the previous 12 months. So it's definitely nice that CEO & Executive Director Yude Yan bought CN¥88k worth of shares at an average price of around CN¥0.20. It seems that at least one insider is prepared to show the market there is potential within Virscend Education.

And the insider buying isn't the only sign of alignment between shareholders and the board, since Virscend Education insiders own more than a third of the company. Indeed, with a collective holding of 51%, 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. In terms of absolute value, insiders have CN¥343m invested in the business, at the current share price. That should be more than enough to keep them focussed on creating shareholder value!

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Virscend Education's CEO, Yude Yan, 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 Virscend Education with market caps under CN¥1.5b is about CN¥1.7m.

Virscend Education's CEO took home a total compensation package worth CN¥902k in the year leading up to August 2024. That is actually below the median for CEO's of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Virscend Education Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Virscend Education's strong EPS growth. Better still, insiders own a large chunk of the company and one has even been buying more shares. These things considered, this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Virscend Education (at least 2 which don't sit too well with us) , and understanding these should be part of your investment process.

The good news is that Virscend Education is not the only stock with insider buying. Here's a list of small cap, undervalued companies in HK 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.

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.