Integrated Research's (ASX:IRI) earnings trajectory could turn positive as the stock soars 11% this past week

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Anyone who held Integrated Research Limited (ASX:IRI) for five years would be nursing their metaphorical wounds since the share price dropped 88% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 43% in the last year. We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

While the last five years has been tough for Integrated Research shareholders, this past week has shown signs of promise. So let's look at the longer term fundamentals and see if they've been the driver of the negative returns.

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There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Integrated Research became profitable within the last five years. Most would consider that to be a good thing, so it's counter-intuitive to see the share price declining. Other metrics might give us a better handle on how its value is changing over time.

The most recent dividend was actually lower than it was in the past, so that may have sent the share price lower. The revenue decline of about 8.0% per year might also encourage sellers.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

We know that Integrated Research has improved its bottom line lately, but what does the future have in store? You can see what analysts are predicting for Integrated Research in this interactive graph of future profit estimates.

A Different Perspective

Integrated Research shareholders are down 41% for the year (even including dividends), but the market itself is up 12%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 13% per year over five years. We realise that Baron Rothschild has said investors should "buy when there is blood on the streets", but we caution that investors should first be sure they are buying a high quality business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Integrated Research (of which 1 is a bit unpleasant!) you should know about.

But note: Integrated Research may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.