Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. 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.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Palo Alto Networks (NASDAQ:PANW). 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.

Palo Alto Networks' Improving Profits

Investors and investment funds chase profits, and that means share prices tend rise with positive earnings per share (EPS) outcomes. So a growing EPS generally brings attention to a company in the eyes of prospective investors. It's an outstanding feat for Palo Alto Networks to have grown EPS from US$1.45 to US$7.88 in just one year. While it's difficult to sustain growth at that level, it bodes well for the company's outlook for the future. This could point to the business hitting a point of inflection.

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. The good news is that Palo Alto Networks is growing revenues, and EBIT margins improved by 5.4 percentage points to 11%, over the last year. That's great to see, on both counts.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

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 Palo Alto Networks?

Are Palo Alto Networks Insiders Aligned With All Shareholders?

Since Palo Alto Networks has a market capitalisation of US$118b, 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. We note that their impressive stake in the company is worth US$1.0b. We note that this amounts to 0.9% of the company, which may be small owing to the sheer size of Palo Alto Networks but it's still worth mentioning. This should still be a great incentive for management to maximise shareholder value.

Does Palo Alto Networks Deserve A Spot On Your Watchlist?

Palo Alto Networks' earnings per share have been soaring, with growth rates sky high. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. Based on the sum of its parts, we definitely think its worth watching Palo Alto Networks very closely. What about risks? Every company has them, and we've spotted 3 warning signs for Palo Alto Networks (of which 1 is significant!) you should know about.

Although Palo Alto Networks certainly looks good, it may appeal to more investors if insiders were buying up shares. If you like to see companies with more skin in the game, then check out this handpicked selection of companies that not only boast of strong growth but have strong insider backing.

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.