Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 Macfarlane Group (LON:MACF). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Macfarlane Group with the means to add long-term value to shareholders.

See our latest analysis for Macfarlane Group

How Quickly Is Macfarlane Group Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Macfarlane Group has managed to grow EPS by 18% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.

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. While we note Macfarlane Group achieved similar EBIT margins to last year, revenue grew by a solid 9.8% to UK£290m. That's encouraging news for the company!

The chart below shows how the company's bottom and top lines have progressed over time. For finer detail, click on the image.

Since Macfarlane Group is no giant, with a market capitalisation of UK£172m, you should definitely check its cash and debt before getting too excited about its prospects.

Are Macfarlane Group 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. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

A great takeaway for shareholders is that company insiders within Macfarlane Group have collectively spent UK£34k acquiring shares in the company. While this isn't much, we also note an absence of sales. It is also worth noting that it was Group Finance Director & Executive Director Ivor Gray who made the biggest single purchase, worth UK£20k, paying UK£1.07 per share.

Does Macfarlane Group Deserve A Spot On Your Watchlist?

For growth investors, Macfarlane Group's raw rate of earnings growth is a beacon in the night. Not only is that growth rate rather juicy, but the insider buying adds fuel to the fire. To put it succinctly; Macfarlane Group is a strong candidate for your watchlist. You still need to take note of risks, for example - Macfarlane Group has 1 warning sign we think you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Macfarlane Group, you'll probably love this free list of growing companies that insiders are buying.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here