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.' 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.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like ADF Group (TSE:DRX). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for ADF Group

ADF Group'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. It's an outstanding feat for ADF Group to have grown EPS from CA$0.49 to CA$1.59 in just one year. When you see earnings grow that quickly, it often means good things ahead for the company. This could point to the business hitting a point of inflection.

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 music to the ears of ADF Group shareholders is that EBIT margins have grown from 9.5% to 18% 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.

ADF Group isn't a huge company, given its market capitalisation of CA$397m. That makes it extra important to check on its balance sheet strength.

Are ADF Group 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. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Not only did ADF Group insiders refrain from selling stock during the year, but they also spent CA$121k buying it. That's nice to see, because it suggests insiders are optimistic. It is also worth noting that it was Independent Director Jean Rochette who made the biggest single purchase, worth CA$100k, paying CA$5.04 per share.

The good news, alongside the insider buying, for ADF Group bulls is that insiders (collectively) have a meaningful investment in the stock. Given insiders own a significant chunk of shares, currently valued at CA$111m, they have plenty of motivation to push the business to succeed. At 28% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Is ADF Group Worth Keeping An Eye On?

ADF Group's earnings per share growth have been climbing higher at an appreciable rate. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest ADF Group belongs near the top of your watchlist. It's still necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with ADF Group , and understanding this should be part of your investment process.

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

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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.