Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. Unfortunately, high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson.

In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Fox Factory Holding (NASDAQ:FOXF). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

Check out our latest analysis for Fox Factory Holding

Fox Factory Holding's Earnings Per Share Are Growing.

As one of my mentors once told me, share price follows earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Fox Factory Holding has managed to grow EPS by 32% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). Fox Factory Holding shareholders can take confidence from the fact that EBIT margins are up from 14% to 16%, and revenue is growing. Ticking those two boxes is a good sign of growth, in my book.

The chart below shows how the company's bottom and top lines have progressed over time. Click on the chart to see the exact numbers.

Fortunately, we've got access to analyst forecasts of Fox Factory Holding's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Fox Factory Holding Insiders Aligned With All Shareholders?

Since Fox Factory Holding has a market capitalization of US$6.6b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Indeed, they hold US$29m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.4% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? A brief analysis of the CEO compensation suggests they are. I discovered that the median total compensation for the CEOs of companies like Fox Factory Holding with market caps between US$4.0b and US$12b is about US$6.3m.

The Fox Factory Holding CEO received US$3.8m in compensation for the year ending . That comes in below the average for similar sized companies, and seems pretty reasonable to me. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of good governance, more generally.

Does Fox Factory Holding Deserve A Spot On Your Watchlist?

You can't deny that Fox Factory Holding has grown its earnings per share at a very impressive rate. That's attractive. If that's not enough, consider also that the CEO pay is quite reasonable, and insiders are well-invested alongside other shareholders. Each to their own, but I think all this makes Fox Factory Holding look rather interesting indeed. It is worth noting though that we have found 2 warning signs for Fox Factory Holding that you need to take into consideration.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

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

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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