Integrated Research Limited (ASX IRI) is an innovative software company that helps companies improve communication efficiency by diagnosing their unified communication (UC) system provider via vendors such as AVAYA and Skype for Business. With consecutive years of net profit growth and a moderate PE, the recent fall in the Integrated Research share price gives investors a good entry price in the current market. Given there is no explanation for the fall in the Integrated Research share price, investors might consider a smaller than normal position for investment.
13th July 2018 Update – IRI has posted an announcement stating that preliminary financial statements are showing revenue growth to be flat and profit after tax growth to be between 1% to 5%. This is a result of a cyclical downswing in infrastructure and an underperforming European operation.
This is quite disappointing, as we pointed out a large correction happened in June and they reported to the ASX that there was no material information to be released under continuous disclosure obligations. However, it seems this is a bit too much of a coincidence for this not to be the reason why the stock corrected in June.
Even though there is no proof that the two events are linked, at this point in time I have no confidence in this stock unless there is an investigation as to whether they did not disclose material information and would not recommend this stock at this time.
About Integrated Research Limited (ASX IRI)
Integrated Research Limited (ASX IRI) creates innovative technology to optimise customer operations and predict business disruption. When a company uses the UC in a multi-vendor environment, there are always mistakes that impact operational efficiency which can be costly for the business; that’s when IRI comes in.
More than 1,000 organisations in over 75 countries – including some of the world’s largest banks, airlines and telecommunications companies rely on IR Prognosis to provide business critical insights and ensure continuity-critical systems deliver high availability and performance for millions of their customers across the globe.
IR Prognosis fits into the information framework with innovative technology that optimises operations, predicts business disruption and automates the steps to improve the experience of every interaction between cloud, hybrid and on-premises environments.
High-Performance Management Team With Exciting R&D
Thanks to the directors and management team, IRI has achieved consecutive years’ net profit growth and witnessed a 10-fold increase from $0.4 in 2008 to $4 at the beginning of 2018.
Over the past 10 years, except for the newly appointed CEO, the management team has barely changed which speaks volumes for the corporate culture within the organisation.
Moreover, the founder and chairman of IRI has been decreasing their ownership percentage in the company from 55.8% in 2015 to 39.2% in 2018, which signals the company becoming more democratic and in a position to make better decisions.
The founder’s recent sell downs have been gradual and have greatly improved liquidity, which allows the stock to be included in the March Index rebalances. IRI was included in the S&P/ASX 300 Index on the 19th March 2018.
The increasing research and development budget allocated within the business is another sign of the companies potential growth.
The following table shows the increasing the R&D expenditure during the past five years.
|R&D Expense||$11.1 m||$12.4 m||$13.6 m||$14.9 m||$7.3 m|
IRI Is The Only Listed Company In A Prosperous Market
There are many public software companies listing on ASX, however, IRI is the only one that is running a business in this niche market – effectively meaning there are no direct competitors in the market of IRI.
The independence in the market brings Integrated Research an extreme advantage and it could be concluded that long as the market is growing, IRI’s share price should grow with it.
The niche market that IRI is running in is important to global companies, and further opportunity exists if Integrated Research works to develop further software and products to expand and share with the market.
It’s important to note, 5 out of 10 of the top global companies, 10 out of 10 of the top US banks, 7 out of 10 of the largest global Telco’s and 5 out of 8 of the largest stock exchanges are using services provided by IRI.
This extraordinary market share effectively prevents new entrants from becoming a threat to IRI.
Recent Price Decline Offers Investors A Bargain Price
Integrated Research shares have maintained many years of steady net profit growth, which corresponds with growth in the Integrated Research share price.
|Net Profit||$9.4 m||$14.8 m||$16.2 m||$18.2 m||$9.2|
As shown in the above chart, the consistently increasing price suffered a rapid fall to the downside recently.
On the 5th of June, the fall in Integrated Research share price was large enough for the ASX to issue a price query to the company. This query is significant as it is a situation where the ASX asks if there is information that can be released by the company to explain the recent share price fall and to make sure the company is meeting continuous disclosure obligation.
After receiving the query the response from IRI was that they were not sure why the share price had fallen and no new information has officially been released.
Given the company’s current situation, future growth opportunities and a moderate PE (26, which is average among other companies in the software industry), the current share price gives investors a positive entry price at current levels.
Integrated Research Is A Good Stock To Buy
Based on the aforementioned reasons, the current Integrated Research share price is an opportunity to buy the stock.
In the long term, the company has nearly a monopoly market status, and the importance of the business to a global enterprise is a good sign the earnings growth will continue in the future.
But given the recent unexplained fall in the Integrated Research share price recently, investors should still be cautious and take a smaller position size in the stock to start with.
Further confirmation on the company’s continued earnings growth will be provided in mid-August when the company releases its full-year results.
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This is general advice only. MF & Co Asset Management has not considered your personal financial needs, objectives or current situation. This information is not an offer, solicitation, or a recommendation for any financial product unless expressly stated. You should seek professional investment advice before making any investment decision.