Inspired Entertainment's (NASDAQ:INSE) Earnings Are Of Questionable Quality

Inspired Entertainment, Inc.'s (NASDAQ:INSE) stock was strong after they reported robust earnings. However, we think that shareholders may be missing some concerning details in the numbers.

Check out our latest analysis for Inspired Entertainment

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, Inspired Entertainment issued 12% more new shares over the last year. That means its earnings are split among a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. You can see a chart of Inspired Entertainment's EPS by clicking here.

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

Three years ago, Inspired Entertainment lost money. And even focusing only on the last twelve months, we don't have a meaningful growth rate because it made a loss a year ago, too. What we do know is that while it's great to see a profit over the last twelve months, that profit would have been better, on a per share basis, if the company hadn't needed to issue shares. Therefore, the dilution is having a noteworthy influence on shareholder returns.

In the long term, if Inspired Entertainment's earnings per share can increase, then the share price should too. 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.

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 Inspired Entertainment's Profit Performance

Over the last year Inspired Entertainment issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Therefore, it seems possible to us that Inspired Entertainment's true underlying earnings power is actually less than its statutory profit. On the bright side, the company showed enough improvement to book a profit this year, after losing money last year. 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. In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. For example, Inspired Entertainment has 3 warning signs (and 2 which are a bit concerning) we think you should know about.

Today we've zoomed in on a single data point to better understand the nature of Inspired Entertainment's profit. But there are plenty of other ways to inform your opinion of a company. 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 that insiders are buying.

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.