Company: Integrated Research Limited ASX Code: IRIShare Price: $0.52Recommendation: ‘Buy’ 

The dot com bubble of the 1990s saw the technology heavy Nasdaq market in the US surge five fold. Shares in start up companies absent of revenues or profits soared on the promise of what the economic new era of the internet would bring. At its pinnacle in 1999, stock prices shot up when company’s simply added an “e-” prefix to its name or a “.com”, such was the hysteria. Those with earnings were also driven to dizzy heights, with the average Price to Earnings (PE) ratio of the Nasdaq soaring above 100. When the bubble finally burst in early 2000, hype soon paved way to hurt, with the Nasdaq falling almost 80% to its ultimate low in late 2002.

The tech crash spelt the end for many companies riding the hysteria of the IT boom, with many falling by the wayside after losing investor support. To this day, the dizzy heights of 1999 remain a long way off. The Nasdaq is currently trading more than 50% below its peak, but has significantly outperformed other market indices over the last 12 months. Having rallied more than 80% from its March 2009 low, vs a 70% rise for the S&P500, it appears that technology is leading the global economic recovery.

Behind the surge is what we’ve identified as the ‘real’ internet boom. Only now, a decade after the dot com crash, are the promises and hype which drove the bubble now finally being delivered. The internet is now everywhere, even in the palm of your hand, and many technology companies lucky enough to have survived the crash are prospering in a big way…

Accounting for only 1% of companies that make up the All Ordinaries index, the technology sector is often overlooked by local investors. But we are seeing no shortage of opportunities, such as Integrated Research Ltd (IRI). Integrated Research is a classic survivor of the dot com mania, actually listing at the height of the bubble at $1.40 per share. Glory days didn’t last long, and after failing to live up to its initial hype, Integrated Research’s share price crashed to lows of 10.5c by mid-2003. It has taken years to resurrect investor confidence, however now boasting a blue-chip client base that includes the world’s largest bank, stock exchange, aviation and telecommunications company – Integrated Research is now finally on the cusp of an exciting period of growth.  

The company sells “performance monitoring and diagnostics software” for business-critical IT infrastructure. The flagship product is PROGNOSIS. Basically, if a company’s computer systems are ‘sick’, this software will provide instant alerts and diagnostics, helping to identify and promptly resolve problems before they impact on business. With IT fast becoming the ‘backbone’ of everyday business, PROGNOSIS has recorded solid earnings growth in recent years. A fresh wave of momentum is now being driven by the internet based (VoIP) telephone network industry, where sales have been increasing by over 30% per annum since 2003. VoIP telephony currently accounts for 25% of total revenue, however last year’s 47% surge in new licence sales to VoIP users is a strong indication that future contributions are set to grow.

Underpinning the rush of demand from VoIP users has been a ‘company-making’ partnership with Avaya – one of the world’s largest suppliers of corporate IP telephony networks. The alliance sees PROGNOSIS recommended as the preferred voice quality monitoring solution to Avaya customers worldwide. Avaya has gone so far as to discontinue its own similar product line and PROGNOSIS is now being shipped with every new piece of compatible Avaya hardware. Unsurprisingly, the alliance has created a robust sales pipeline, and if current earnings momentum continues, the stock’s current PE of 11 and dividend yield of 8% offer an attractive value proposition.

Tim Morris is an analyst at Please note that simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of You should seek professional advice before making any investment decisions.


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