INSAN (KOSDAQ:277410) Posted Healthy Earnings But There Are Some Other Factors To Be Aware Of

INSAN Inc.'s (KOSDAQ:277410) 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.

View our latest analysis for INSAN

One essential aspect of assessing earnings quality is to look at how much a company is diluting shareholders. INSAN expanded the number of shares on issue by 18% over the last year. As a result, its net income is now split between a greater number of shares. Per share metrics like EPS help us understand how much actual shareholders are benefitting from the company's profits, while the net income level gives us a better view of the company's absolute size. You can see a chart of INSAN's EPS by clicking here.

A Look At The Impact Of INSAN's Dilution On Its Earnings Per Share (EPS)

INSAN has improved its profit over the last three years, with an annualized gain of 6.1% in that time. But on the other hand, earnings per share actually fell by 20% per year. And at a glance the 39% gain in profit over the last year impresses. But in comparison, EPS only increased by 27% over the same period. And so, you can see quite clearly that dilution is influencing shareholder earnings.

Changes in the share price do tend to reflect changes in earnings per share, in the long run. So it will certainly be a positive for shareholders if INSAN can grow EPS persistently. However, if its profit increases while its earnings per share stay flat (or even fall) then shareholders might not see much benefit. For the ordinary retail shareholder, EPS is a great measure to check your hypothetical "share" of the company's profit.

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

Our Take On INSAN's Profit Performance

INSAN shareholders should keep in mind how many new shares it is issuing, because, dilution clearly has the power to severely impact shareholder returns. Therefore, it seems possible to us that INSAN's true underlying earnings power is actually less than its statutory profit. The good news is that, its earnings per share increased by 27% in the last year. The goal of this article has been to assess how well we can rely on the statutory earnings to reflect the company's potential, but there is plenty more to consider. So while earnings quality is important, it's equally important to consider the risks facing INSAN at this point in time. Every company has risks, and we've spotted 3 warning signs for INSAN you should know about.

Today we've zoomed in on a single data point to better understand the nature of INSAN's profit. But there are plenty of other ways to inform your opinion of a company. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. While it might take a little research on your behalf, you may find this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying to be useful.

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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.