IntraSoft Technologies' (NSE:ISFT) Earnings Are Of Questionable Quality

IntraSoft Technologies Limited's (NSE:ISFT) robust earnings report didn't manage to move the market for its stock. Our analysis suggests that this might be because shareholders have noticed some concerning underlying factors.

Check out our latest analysis for IntraSoft Technologies

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. In fact, IntraSoft Technologies increased the number of shares on issue by 11% over the last twelve months by issuing new shares. That means its earnings are split among a greater number of shares. 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. You can see a chart of IntraSoft Technologies' EPS by clicking here.

How Is Dilution Impacting IntraSoft Technologies' Earnings Per Share (EPS)?

As you can see above, IntraSoft Technologies has been growing its net income over the last few years, with an annualized gain of 17% over three years. And over the last 12 months, the company grew its profit by 17%. But in comparison, EPS only increased by 16% over the same period. Therefore, the dilution is having a noteworthy influence on shareholder returns.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So IntraSoft Technologies shareholders will want to see that EPS figure continue to increase. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Note: we always recommend investors check balance sheet strength. Click here to be taken to our balance sheet analysis of IntraSoft Technologies.

Our Take On IntraSoft Technologies' Profit Performance

IntraSoft Technologies shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Because of this, we think that it may be that IntraSoft Technologies' statutory profits are better than its underlying earnings power. Nonetheless, it's still worth noting that its earnings per share have grown at 17% over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. Every company has risks, and we've spotted 3 warning signs for IntraSoft Technologies (of which 1 is potentially serious!) you should know about.

This note has only looked at a single factor that sheds light on the nature of IntraSoft Technologies' profit. But there is always more to discover if you are capable of focussing your mind on minutiae. Some people consider a high return on equity to be a good sign of a quality business. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks with high insider ownership.

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.