About Intuit
It’s the most terrible time of the year, some might say.
Some years are certainly worse than others when it comes to tax season, at least from our experiences, however, we don’t think it’s much of a stretch to assume that there’s never been anyone who jumped out of bed in late January, ecstatic to get their taxes figured out and ultimately filed.
Although tax season is still a burden for many, especially, in many instances, workers within the gig economy, we think it’s worth giving this company its props when it comes to its proven ability of simplifying and making tax season considerably easier, particularly, income taxes.
When we say this company, we’re referring to one of Intuit’s flagship subsidiaries, TurboTax, which holds a considerable grip in the tax solutions industry. TurboTax, remarkably so, offers, along with other supplemental or premier services, free federal and state tax filing.
So, how in the world does TurboTax make money?
Primarily through the premium paid packages it offers its users as well as its available live sessions that can be set up with TurboTax’s specialized tax assistants.
All in all, TurboTax accounts for a considerable amount of Intuit’s total annual revenue.
But wait, there’s more.
Intuit isn’t just Intuit and TurboTax.
Intuit is also home to a few other notable companies in the human resources (HR), both personal and organization finance and other related technology spaces.
It will likely make a lot more sense if we were to flat out list some of Intuit’s main, prized subsidiaries.
In addition to TurboTax, Intuit owns personal finance platforms Credit Karma and Mint, accounting software platform with reportedly almost 40% market share in the accounting sphere, QuickBooks along with dominant mass-email and marketing company, Mailchimp, which apparently has nearly 10% in the so-called email-management sector.
Without a doubt in our minds, Intuit has something akin to a Russian nesting doll of valuable assets. More specifically, at face value, the aforementioned subsidiaries are valuable in their own right but arguably more importantly, is the additional value embedded in those subsidiaries which are all seemingly concentrated in the software and business arms of the global economy.
Nevertheless, when we first took a look at Intuit’s subsidiaries, we had a feeling similar to what we had previously felt about a company that we’ve analyzed in the past, Clorox.
Like Intuit, Clorox isn’t just Clorox, but it is a host of other brands that at first blush don’t make a lot of sense as to why they are mushed together into one consumer goods company.
Unfocused was the word that kept coming to mind when drafting that article, however, we’d objectively say that Intuit’s brands aren’t as unfocused given their overall connection to the financial software and general business technology spaces.
Mailchimp is a bit random but it is nevertheless a service that is used by organizations and groups of all sizes across the board, of course, including businesses.
Therefore, it makes some sense and it’s also a valuable asset for Intuit to own as the importance of search engine optimization (SEO) and marketing only continues to grow.
We also like the fact that all of these main subsidiaries are seemingly recession proof by nature.
For instance, no matter how bad the state of the economy, people across the globe will need to get their taxes taken care of at little to no cost. Additionally, the younger generation will continue needing interactive ways in which they can keep a pulse on their finances as they grow older and try to achieve their personal financial goals. Lastly, Mailchimp is a domineer in the email marketing space and the worse the economy gets, it is our estimation that more and more businesses will be willing to pay a premium for promoting specials and other product lines in order to keep their doors open.
So there’s a rundown on Intuit.
Now that some of the company’s general services and offerings have been laid out, let’s take a closer look at this company’s core financials and try to figure out whether or not this stock is worth considering investing in for the long haul or not.
Intuit’s stock financials
With a market capitalization of $117.2 billion, Intuit’s stock (NASDAQ: INTU) is presently trading at a share price of nearly $411 with a price-to-earnings (P/E) ratio of a whopping 61.91 along with offering an annual dividend of $3.12 to its shareholders.
First of all, we’re happy to find that this seasoned software company offers its investors an annual dividend, as even for some of the more mature technology companies it is quite uncommon.
But what’s the sweet without the bitter?
The bitter is embedded in Intuit’s current P/E ratio.
Specifically, as we have harped on in previous stock analysis articles, it is generally accepted that a price-to-earnings ratio of 20 implies that a stock is trading at exactly fair value whereas anything higher indicates that it is overvalued, the degree to which it is overvalued hinging on how far to the upside the P/E is from 20.
Evidently, Intuit’s current P/E ratio is way above 20.
Under certain circumstances it makes sense to be willing to pay a premium price for a company that is growing rapidly and eating up market share for breakfast, lunch and dinner.
However, before looking much deeper into the financials driving this company, we can’t help to think that there isn’t enough current growth to justify paying a significant premium for shares in the company.
Of course, we could be wrong.
Let’s try to find out.
As it pertains to the company’s balance sheet, Intuit’s executive team is in charge of around $27.7 billion in terms of total assets as well as approximately $11.3 billion in total liabilities.
Truth be told, this is a phenomenally structured balance sheet, from our vantage point.
Although the space in which it operates requires continued investment and reinvestment in order to remain at or near the top, the company’s management has been able to craft and maintain a very total asset-heavy balance sheet, even during times of turmoil and unfavorable market conditions, which speaks volumes to both the company’s evidently frugal management team and the recession resistant nature of its businesses.
It can also be noted that it is our view that this company thrives on acquisitions, which, as the dust settles following the current recession, it will be more than able to pursue given the fortitude of its balance sheet.
Well done, Intuit.
Onto some of the more growth-oriented figures (namely, that can help us get a better idea of whether or not this company’s stock is worth paying a substantial premium for), let’s take a trip over to Income Statement Lane, shall we?
To our surprise, Intuit’s total revenue over the last five years has been growing at a very healthy rate.
For instance, in 2018 the company’s reported total revenue stood at just north of $6 billion and has risen each year since to its latest reported figure (found on TD Ameritrade’s platform) of nearly $12.8 billion as of 2022.
This is frankly more growth than we had initially anticipated, which is great, however, from the perspective of the company’s current price-to-earnings ratio, it still doesn’t justify the exorbitantly high stock price at this moment in time.
Nevertheless, given this outstanding growth and our personal opinion that the company will make some strategic acquisitions in the years to come following the recession, we might’ve been willing to pay a smaller premium, somewhere in the neighborhood of a P/E of 25 or maybe even 30, however, we’re not comfortable with the current 60.
Onto the company’s cash flow statement, generating positive net income over the last five years along with total cash from operations has hardly been a problem for Intuit.
For example, the company’s net income has steadily grown from 2018, where it was pegged at approximately $1.3 billion, extending between then to its latest report (displayed on TD Ameritrade’s platform) to almost $2.1 billion in 2022.
Intuit’s total cash from operations has sung a similar tune, hanging around $2 billion and rising each year thereafter to a hair under $4 billion, which to us is equally as impressive.
Intuit’s stock fundamentals
When it comes to Intuit’s trailing twelve month (TTM) net profit margin, the company certainly remains competitive, however, we were slightly underwhelmed.
We have no problems admitting that we objectively hold a company such as Intuit to high standards.
Namely, according to TD Ameritrade’s platform, the company’s TTM net profit margin is 14.1% to the industry’s average of 15.51%.
Although we wouldn’t categorize this discrepancy as a material difference, we still would’ve assumed Intuit had an annual net profit margin that was greater (not by much) than the industry’s average given its leadership position in the industry.
This certainly isn’t going to make us automatically hit the “sell” button on Intuit’s stock but it does make us want to ponder why the company’s TTM net profit margin isn’t as high (relative to the competition) as we initially presumed.
Lastly, as it relates to Intuit’s TTM returns on assets and investment, both of these metrics trail the industry’s averages by a negligible margin but again, it makes us wonder where the company could increase its efficiency and thus its margins and returns.
Should you buy Intuit stock?
Given everything that we have seen from this company, its execution, assets and financials are second to none.
We view this as a company that will be around for centuries to come and that will also keep acquiring valuable pieces along the way in order to keep growing in order to maintain its market share in the various (yet overall focused) industries it operates in.
However, this company isn’t a start-up anymore and although there are some fairly impressive growth figures driving this company, they aren’t impressive enough to justify, in our view, at least, paying a monstrous premium.
Given all of this information we deem it most appropriate to give Intuit’s stock a “sell” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.