It is common for many investors, especially inexperienced investors, to buy stocks in companies with a good history, even if those companies are making losses. But as Peter Lynch said One Up on Wall Street“It's almost never worth taking long shots.” Loss-making companies are constantly racing against time to become financially viable. As a result, investors in these companies may be taking on more risk than they should.

If this idea of ​​high risk and high reward doesn't appeal to you, you may be more interested in profitable, growing companies gap (NYSE:GAP). Even if this company is fairly valued by the market, investors agree that generating consistent profits continues to provide Gap with the opportunity to deliver long-term value to shareholders.

Check out our latest analysis for Gap

Gap increases profits

Even with very modest growth rates, a company will typically do well if it improves earnings per share (EPS) year after year. So, EPS growth can certainly encourage an investor to take note of a stock. It's impressive that Gap's earnings per share rose from $0.29 to $2.04 in just one year. When profits rise so quickly, it often means that the company has a bright future ahead.

It's often helpful to take a look at earnings before interest and taxes (EBIT) margins as well as revenue growth to get another perspective on the quality of the company's growth. This approach makes Gap look pretty good overall; Although sales are stagnating, EBIT margins improved from 2.2% to 6.3% last year. That's something to smile about.

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

Since you don't look at the rearview mirror while driving, this might be of more interest to you free Analyst forecast report for Gap's Future Profits.

Are Gap insiders aligned with all shareholders?

Many consider a high percentage of insider ownership to be a strong sign of alignment between a company's executives and common shareholders. So as you can imagine, the fact that Gap insiders own a significant number of shares is certainly tempting. Since the company owns 48%, insiders have a lot of influence on the development of the share price. This should be a welcome sign for investors, as it suggests that the people making the decisions are also influenced by their decisions. And their stake is extremely valuable at the current share price, totaling $3.9 billion. This is an incredible endorsement from them.

Does Gap deserve a spot on your watchlist?

Gap's profits have increased at an impressive rate. Such growth is eye-catching, and the large investment from insiders should certainly brighten the view on the company. Sometimes rapid EPS growth is a sign that the company has reached an inflection point, so there is a potential opportunity here. Given the sum of its parts, we definitely think Gap is worth keeping a close eye on. However, note that Gap is displayed 1 warning sign in our investment analysis this is what you should know…

While choosing stocks without growing earnings and without insider buying can produce results, investors who value these key metrics can find a curated list of US companies with promising growth potential and insider trust.

Please note that the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term focused analysis based on fundamental data. Note that our analysis may not reflect the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.