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. 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. 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.

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

View our latest analysis for Planet Fitness

Planet Fitness’ Improving Profits

Over the last three years, Planet Fitness has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn’t particularly indicative of expected future performance. Thus, it makes sense to focus on more recent growth rates, instead. Planet Fitness’ EPS shot up from US$1.48 to US$1.86; a result that’s bound to keep shareholders happy. That’s a fantastic gain of 26%.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it’s a great way for a company to maintain a competitive advantage in the market. Planet Fitness maintained stable EBIT margins over the last year, all while growing revenue 6.9% to US$1.0b. 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.

Fortunately, we’ve got access to analyst forecasts of Planet Fitness’ future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Planet Fitness Insiders Aligned With All Shareholders?

Since Planet Fitness has a market capitalisation of US$6.7b, we wouldn’t expect insiders to hold a large percentage of shares. But we do take comfort from the fact that they are investors in the company. To be specific, they have US$22m worth of shares. This considerable investment should help drive long-term value in the business. 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.

Does Planet Fitness Deserve A Spot On Your Watchlist?

If you believe that share price follows earnings per share you should definitely be delving further into Planet Fitness’ strong EPS growth. Further, the high level of insider ownership is impressive and suggests that the management appreciates the EPS growth and has faith in Planet Fitness’ continuing strength. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it’s a good stock to follow. Don’t forget that there may still be risks. For instance, we’ve identified 2 warning signs for Planet Fitness that you should be aware of.

There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.

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.