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. 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. 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.

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 Lottery (ASX:TLC). While this doesn't necessarily speak to whether it's undervalued, the profitability of the business is enough to warrant some appreciation - especially if its growing.

View our latest analysis for Lottery

Lottery's Improving Profits

Even when EPS earnings per share (EPS) growth is unexceptional, company value can be created if this rate is sustained each year. So it's easy to see why many investors focus in on EPS growth. To the delight of shareholders, Lottery's EPS soared from AU$0.12 to AU$0.19, over the last year. That's a impressive gain of 56%.

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. Lottery maintained stable EBIT margins over the last year, all while growing revenue 14% to AU$4.0b. That's encouraging news for the company!

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.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Lottery's future EPS 100% free.

Are Lottery 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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

Not only did Lottery insiders refrain from selling stock during the year, but they also spent AU$245k buying it. This is a good look for the company as it paints an optimistic picture for the future. We also note that it was the Independent Non-Executive Director, Anne Brennan, who made the biggest single acquisition, paying AU$101k for shares at about AU$4.95 each.

Along with the insider buying, another encouraging sign for Lottery is that insiders, as a group, have a considerable shareholding. As a matter of fact, their holding is valued at AU$34m. That's a lot of money, and no small incentive to work hard. While their ownership only accounts for 0.3%, this is still a considerable amount at stake to encourage the business to maintain a strategy that will deliver value to shareholders.

Should You Add Lottery To Your Watchlist?

For growth investors, Lottery's raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. Still, you should learn about the 2 warning signs we've spotted with Lottery.

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