For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

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 NTG Clarity Networks (CVE:NCI). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for NTG Clarity Networks

How Quickly Is NTG Clarity Networks Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. That means EPS growth is considered a real positive by most successful long-term investors. NTG Clarity Networks' shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 56%. While that sort of growth rate isn't sustainable for long, it certainly catches the eye of prospective investors.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note NTG Clarity Networks achieved similar EBIT margins to last year, revenue grew by a solid 76% to CA$39m. That's encouraging news for the company!

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.

Since NTG Clarity Networks is no giant, with a market capitalisation of CA$55m, you should definitely check its cash and debt before getting too excited about its prospects.

Are NTG Clarity Networks Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite CA$619k worth of sales, NTG Clarity Networks insiders have overwhelmingly been buying the stock, spending CA$1.3m on purchases in the last twelve months. An optimistic sign for those with NTG Clarity Networks in their watchlist. It is also worth noting that it was Founder Ashraf Zaghloul who made the biggest single purchase, worth CA$975k, paying CA$0.15 per share.

These recent buys aren't the only encouraging sign for shareholders, as a look at the shareholder registry for NTG Clarity Networks will reveal that insiders own a significant piece of the pie. In fact, they own 38% of the shares, making insiders a very influential shareholder group. This should be a welcoming sign for investors because it suggests that the people making the decisions are also impacted by their choices. With that sort of holding, insiders have about CA$21m riding on the stock, at current prices. That's nothing to sneeze at!

Does NTG Clarity Networks Deserve A Spot On Your Watchlist?

NTG Clarity Networks' earnings have taken off in quite an impressive fashion. What's more, insiders own a significant stake in the company and have been buying more shares. These factors seem to indicate the company's potential and that it has reached an inflection point. We'd suggest NTG Clarity Networks belongs near the top of your watchlist. Before you take the next step you should know about the 6 warning signs for NTG Clarity Networks (3 can't be ignored!) that we have uncovered.

The good news is that NTG Clarity Networks is not the only stock with insider buying. Here's a list of small cap, undervalued companies in CA with insider buying in the last three months!

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

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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.