Is Iress Ltd an undervalued growth share?

Credit: Pictures of Money

One thing that many investors look for when hunting for quality shares to invest in, is growth at a reasonable price.

One particular share that I believe provides this is Iress Ltd (ASX: IRE).

Iress provides information, trading, compliance, order management, portfolio, wealth management and enterprise lending systems and related tools. Perhaps the company is best known for its popular XPLAN software designed for financial planners.

Type in XPLAN into the search bar on SEEK Limited (ASX: SEK) and you’ll find a seemingly endless amount of pages with job vacancies wanting someone with XPLAN experience. Such is the level of use in the Australian finance industry. But the company isn’t settling for that, and has been on a mission in the last 12 months to expand its offering.

I believe the recent acquisitions over in the United Kingdom of Proquote Limited, which is a leading provider of trading, market data and connectivity solutions; and Pulse Software Systems Ltd – a leading provider of portfolio management software for private asset managers, will prove to be very successful.

Due to UK regulatory changes and market demands there is a strong need for unified, flexible and reliable technology solutions. Management expects the acquisitions to be accretive to earnings in fiscal 2016, which should act as great catalyst to a higher rate of earnings growth.

On home soil last year, Australia’s largest bank, the Commonwealth Bank of Australia (ASX: CBA), expanded its partnership with Iress by selecting XPLAN as the advice technology partner for the bank’s Wealth Management Advice business. Although this was announced early in 2015, the agreements kick in this year, so the company’s bottom line should see a lift from this agreement from this year onwards.

Also in Australia, I was pleased to see the company acquired Innergi. While I don’t expect this acquisition to cause an immediate boost to either the top or bottom lines, the product itself is a great one to have in its arsenal. Innergi is a tool for financial planners to communicate and engage with their clients. As the world becomes more digital, I feel this sort of communication will become much more necessary, especially for the millennial market.

The strength of the international business is the key reason I believe that this is a company worthy of an investment today. According to its last annual report approximately a third of its revenue came from the UK, where 95% of the top 100 money managers use its services, and 25% of all UK mortgages processed go through its software. The British pound has strengthened significantly against the Australian dollar, which is a further boost for the company.

Although the 24x forward earnings that it trades at currently might not seem that cheap, when you factor in the more than achievable analyst earnings growth expectation of 17% per annum for the next two years, together with the fact that the shares have traded at an average price-to-earnings ratio of 26 in the last four years, I think this can be classed as a reasonable price.

Foolish takeaway

With the shares hovering above their 52-week low and the excellent earnings growth ahead, now could be a great time to consider Iress as part of your portfolio. I feel the shares are destined for strong gains in the next 12 months.

BRAND NEW! Our Top Dividend Stock for 2016

Our resident dividend expert names his Top Dividend Share for 2016. Not only are the shares dirt cheap, the company is trading on a 5.6% fully franked dividend yield. Simply click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required!

Motley Fool contributor James Mickleboro has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.