We Think Innodata's (NASDAQ:INOD) Robust Earnings Are Conservative

When companies post strong earnings, the stock generally performs well, just like Innodata Inc.'s (NASDAQ:INOD) stock has recently. We did some digging and found some further encouraging factors that investors will like.

View our latest analysis for Innodata

How Do Unusual Items Influence Profit?

For anyone who wants to understand Innodata's profit beyond the statutory numbers, it's important to note that during the last twelve months statutory profit was reduced by US$580k due to unusual items. It's never great to see unusual items costing the company profits, but on the upside, things might improve sooner rather than later. We looked at thousands of listed companies and found that unusual items are very often one-off in nature. And that's hardly a surprise given these line items are considered unusual. Assuming those unusual expenses don't come up again, we'd therefore expect Innodata to produce a higher profit next year, all else being equal.

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

Unusual items (expenses) detracted from Innodata's earnings over the last year, but we might see an improvement next year. Based on this observation, we consider it likely that Innodata's statutory profit actually understates its earnings potential! And one can definitely find a positive in the fact that it made a profit this year, despite losing money 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 Innodata at this point in time. In terms of investment risks, we've identified 2 warning signs with Innodata, and understanding these bad boys should be part of your investment process.

This note has only looked at a single factor that sheds light on the nature of Innodata'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. 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.

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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.