The Motley Fool

Why the Integrated Research Limited (ASX:IRI) share price is down 11% today

The share price of software provider Integrated Research Limited (ASX: IRI) has fallen 11% today to $2.18 following this morning’s announcement that its Chief Executive Officer and Managing Director, John Merakovsky, has tendered his resignation for family reasons. Mr. Merakovsky intends to work through his three-month notice period where the company’s Board will conduct a search for his replacement.

Today’s announcement follows last month’s announcement of the retirement from the Board as both the Chairman and a Non-Executive Director of Steve Killelea, the company’s founder, and largest shareholder.

Mr. Killelea has entered into a consulting contract with Integrated Research for 2 years to provide assistance and act in an advisory capacity to the Strategic Committee. Furthermore, he has also indicated that he will continue to hold his significant 39.5% stake in the company with no immediate plans to reduce his ownership interest.

Difficult 2018 

2018 has been a difficult year for Integrated Research with the company’s share price falling 44% on fears of overvaluation and a slowdown in earnings growth. In FY18, the company’s revenue was flat at $91.2 million with net profit after tax climbing 4% to $19.2 million.

By Integrated Research’s lofty standards FY18 was a subdued year with the company attributing its financial performance to a cyclical downturn in its infrastructure line and underperformance in its European operations that was a result of poor internal execution. On a positive note, the Unified Communications line and Consulting Services line continue to grow at 7% and 9% respectively.

The company boasts an impressive customer base that includes over 125 of the Fortune 500 with new customers such as Bosch, Paypal Holdings Inc, BHP Billiton Limited (ASX: BHP) and the Coles supermarkets owned by Wesfarmers Ltd (ASX: WES) added in FY18.

Foolish takeaway

Shares of Integrated Research are still up around 990% over the last decade as the company has been a growth darling in the small-cap space following the successful execution of its growth strategy that has generated large returns for long-term shareholders.

Integrated Research is currently trading for around 19 times trailing earnings which is the lowest valuation multiple it has traded on for quite some time. Today’s prices could represent good value if the company can return to the earnings growth it has delivered in prior years. However, investors may want to wait for the company’s half-year numbers in February to see if the company is back on track and the issues of FY18 were a one-off occurrence.

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Motley Fool contributor Tim Katavic owns shares of PayPal Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends PayPal Holdings. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has the following options: short January 2019 $82 calls on PayPal Holdings. The Motley Fool Australia owns shares of and has recommended Wesfarmers Limited. The Motley Fool Australia has recommended Integrated Research Limited and PayPal Holdings. 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 Scott Phillips.