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Innodata Inc. (NASDAQ:INOD) announced strong profits, but the stock was stagnant. We did some digging, and we found some concerning factors in the details.
See our latest analysis for Innodata
To understand the value of a company's earnings growth, it is imperative to consider any dilution of shareholders' interests. In fact, Innodata increased the number of shares on issue by 9.0% over the last twelve months by issuing new shares. Therefore, each share now receives a smaller portion of profit. To celebrate net income while ignoring dilution is like rejoicing because you have a single slice of a larger pizza, but ignoring the fact that the pizza is now cut into many more slices. Check out Innodata's historical EPS growth by clicking on this link.
A Look At The Impact Of Innodata's Dilution On Its Earnings Per Share (EPS)
Three years ago, Innodata lost money. Zooming in to the last year, we still can't talk about growth rates coherently, since it made a loss last year. But mathematics aside, it is always good to see when a formerly unprofitable business come good (though we accept profit would have been higher if dilution had not been required). So you can see that the dilution has had a bit of an impact on shareholders.
In the long term, if Innodata's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.
That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.
Our Take On Innodata's Profit Performance
Innodata issued shares during the year, and that means its EPS performance lags its net income growth. Therefore, it seems possible to us that Innodata's true underlying earnings power is actually less than its statutory profit. The good news is that it earned a profit in the last twelve months, despite its previous loss. Of course, we've only just scratched the surface when it comes to analysing its earnings; one could also consider margins, forecast growth, and return on investment, among other factors. So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. Case in point: We've spotted 2 warning signs for Innodata you should be aware of.