What a brutal six months it’s been for Intuit. The stock has dropped 59.7% and now trades at a new 52-week low of $269.70, rattling many shareholders. This may have investors wondering how to approach the situation.
Following the drawdown, is now the time to buy INTU? Find out in our full research report, it’s free.
Why Does INTU Stock Spark Debate?
Originally named after its founding product "Intuitive for the first-time user," Intuit (NASDAQ:INTU) provides financial management software and services including TurboTax, QuickBooks, Credit Karma, and Mailchimp to help consumers and small businesses manage their finances.
Two Positive Attributes:
1. Operating Margin Reveals a Well-Run Organization
Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.
Intuit has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 27.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
2. Excellent Free Cash Flow Margin Boosts Reinvestment Potential
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Intuit has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 36.9% over the last year.
One Reason to Be Careful:
Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Intuit’s revenue to rise by 11.1%, a deceleration versus its 18.7% annualized growth for the past five years. This projection is underwhelming and indicates its products and services will see some demand headwinds. At least the company is tracking well in other measures of financial health.
Final Judgment
Intuit has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 3.3× forward price-to-sales (or $269.70 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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