It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' 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.

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 Keystone Law Group (LON:KEYS). 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 Keystone Law Group

How Fast Is Keystone Law Group Growing?

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. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Keystone Law Group has grown EPS by 17% per year, compound, in the last three years. If the company can sustain that sort of growth, we'd expect shareholders to come away satisfied.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Keystone Law Group maintained stable EBIT margins over the last year, all while growing revenue 13% to UK£73m. That's progress.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for Keystone Law Group?

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

While Keystone Law Group insiders did net UK£68k selling stock over the last year, they invested UK£591k, a much higher figure. An optimistic sign for those with Keystone Law Group in their watchlist. Zooming in, we can see that the biggest insider purchase was by Founder James Knight for UK£500k worth of shares, at about UK£4.50 per share.

Along with the insider buying, another encouraging sign for Keystone Law Group is that insiders, as a group, have a considerable shareholding. With a whopping UK£45m worth of shares as a group, insiders have plenty riding on the company's success. At 31% of the company, the co-investment by insiders fosters confidence that management will make long-term focussed decisions.

Shareholders have more to smile about than just insiders adding more shares to their already sizeable holdings. That's because Keystone Law Group's CEO, James Knight, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Keystone Law Group, with market caps between UK£80m and UK£320m, is around UK£572k.

Keystone Law Group's CEO took home a total compensation package worth UK£330k in the year leading up to January 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. It can also be a sign of good governance, more generally.

Does Keystone Law Group Deserve A Spot On Your Watchlist?

You can't deny that Keystone Law Group has grown its earnings per share at a very impressive rate. That's attractive. Furthermore, company insiders have been adding to their significant stake in the company. These things considered, this is one stock worth watching. Still, you should learn about the 1 warning sign we've spotted with Keystone Law Group.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Keystone Law 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.

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