Advertisement
Australia markets closed
  • ALL ORDS

    8,153.70
    +80.10 (+0.99%)
     
  • ASX 200

    7,896.90
    +77.30 (+0.99%)
     
  • AUD/USD

    0.6530
    +0.0011 (+0.17%)
     
  • OIL

    83.11
    -0.06 (-0.07%)
     
  • GOLD

    2,254.80
    +16.40 (+0.73%)
     
  • Bitcoin AUD

    107,923.43
    -649.41 (-0.60%)
     
  • CMC Crypto 200

    885.54
    0.00 (0.00%)
     
  • AUD/EUR

    0.6045
    +0.0011 (+0.18%)
     
  • AUD/NZD

    1.0904
    +0.0002 (+0.02%)
     
  • NZX 50

    12,105.29
    +94.63 (+0.79%)
     
  • NASDAQ

    18,254.69
    -26.15 (-0.14%)
     
  • FTSE

    7,952.62
    +20.64 (+0.26%)
     
  • Dow Jones

    39,807.40
    +47.29 (+0.12%)
     
  • DAX

    18,492.49
    +15.40 (+0.08%)
     
  • Hang Seng

    16,541.42
    +148.58 (+0.91%)
     
  • NIKKEI 225

    40,369.44
    +201.37 (+0.50%)
     

Should You Be Tempted To Buy Integrated Research Limited (ASX:IRI) At Its Current PE Ratio?

The content of this article will benefit those of you who are starting to educate yourself about investing in the stock market and want to better understand how you can grow your money by investing in Integrated Research Limited (ASX:IRI).

Integrated Research Limited (ASX:IRI) is trading with a trailing P/E of 26.8x, which is lower than the industry average of 28.3x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. In this article, I will break down what the P/E ratio is, how to interpret it and what to watch out for. See our latest analysis for Integrated Research

Demystifying the P/E ratio

ASX:IRI PE PEG Gauge June 26th 18
ASX:IRI PE PEG Gauge June 26th 18

The P/E ratio is one of many ratios used in relative valuation. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

ADVERTISEMENT

P/E Calculation for IRI

Price-Earnings Ratio = Price per share ÷ Earnings per share

IRI Price-Earnings Ratio = A$3.15 ÷ A$0.117 = 26.8x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We preferably want to compare the stock’s P/E ratio to the average of companies that have similar features to IRI, such as capital structure and profitability. A quick method of creating a peer group is to use companies in the same industry, which is what I will do. At 26.8x, IRI’s P/E is lower than its industry peers (28.3x). This implies that investors are undervaluing each dollar of IRI’s earnings. As such, our analysis shows that IRI represents an under-priced stock.

A few caveats

While our conclusion might prompt you to buy IRI immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to IRI. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared higher growth firms with IRI, then its P/E would naturally be lower since investors would reward its peers’ higher growth with a higher price. The second assumption that must hold true is that the stocks we are comparing IRI to are fairly valued by the market. If this is violated, IRI’s P/E may be lower than its peers as they are actually overvalued by investors.

What this means for you:

You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to IRI. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for IRI’s future growth? Take a look at our free research report of analyst consensus for IRI’s outlook.

  2. Past Track Record: Has IRI been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of IRI’s historicals for more clarity.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.