As INTU Falls, Is It Finally Reaching a Fair Valuation?

Intuit (INTU) shares moved -3.7 % yesterday, bringing their 52 week performance to -39.3%. The stock seems to be overvalued in terms of traditional metrics, but in this day in age, we believe a complete stock analysis should also take into account growth metrics and market sentiment -- which can shed light on the stock's long term and short term prospects respectively.

INTU Has a Higher P/E Ratio Than the Sector Average

Compared to the Technology sector's average of 26.5, Intuit has a trailing twelve month price to earnings (P/E) ratio of 50.6 and an expected price to P/E ratio of 23. P/E ratios are calculated by dividing the company's share price by either its trailing 12 month or forward earnings per share.

Earnings represent the net profits left over after subtracting costs of goods sold, taxes, and operating costs from the company's recorded sales revenue. One way of looking at the P/E ratio is that it represents how much investors are willing to pay for every dollar's worth of the company's earnings. Since Intuit's P/E ratio is higher than its sector average, we can deduce that the market is overvaluing the company's earnings.

INTU Has an Alarming P/B Ratio

The price to book (P/B) ratio of a company is a comparison of the company's market capitalization versus its net asset, or book value. A ratio lower than 1 tells you that the equity market is undervaluing the book value of the company's assets, and ratios higher than 1 tell you that the equity markets are overvaluing the company in terms of its assets.

Of course, a company is worth much more than its assets alone, so the focus on P/B ratio is mainly to enable investors to single out undervalued securities that offer a margin of safety. Since Intuit's P/B ratio of 6.19 is higher than its sector average, such a margin of safety does not exist for the stock.

Investors Stand to Gain from INTU's Cash Flows

Intuit has strong cash flows. With a coefficient of variability of 24.5% and an average growth rate of 19.1%, the company is effectively turning its revenue into cash. We calculate Intuit's free cash flows by subtracting capital expenditures (long term investments in the business) from its total cash flows from operations:

Date Reported Cash Flow from Operations ($) Capital expenditures ($) Free Cash Flow ($) YoY Growth (%)
2022-07-31 3,889,000,000.0 -157,000,000.0 3,732,000,000.0 16.73
2021-07-31 3,250,000,000.0 -53,000,000.0 3,197,000,000.0 35.75
2020-07-31 2,414,000,000.0 -59,000,000.0 2,355,000,000.0 4.76
2019-07-31 2,324,000,000.0 -76,000,000.0 2,248,000,000.0 n/a

Intuit's Is a Profitable Business

If you are looking to make INTU a long term investment, it's essential that you understand the viability of its business through a study of its margins. Gross margins tell you how much the company makes in profit when only the costs directly related to producing the goods or delivering the service are taken into account. Operating margins, on the other hand, factor in overhead costs so they tell you how effectively Intuit is run.

Intuit's Gross Margins

Date Reported Revenue ($) Cost of Revenue ($) Gross Margins (%) YoY Growth (%)
2022-07-31 12,726,000,000.0 2,266,000,000.0 82.19 -1.04
2021-07-31 9,633,000,000.0 1,633,000,000.0 83.05 0.86
2020-07-31 7,679,000,000.0 1,356,000,000.0 82.34 -0.9
2019-07-31 6,784,000,000.0 1,147,000,000.0 83.09 n/a

Intuit's Operating Margins

Date Reported Total Revenue ($) Operating Expenses ($) Operating Margins (%) YoY Growth (%)
2022-07-31 12,726,000,000.0 10,092,000,000.0 20.7 -21.2
2021-07-31 9,633,000,000.0 7,102,000,000.0 26.27 -8.47
2020-07-31 7,679,000,000.0 5,475,000,000.0 28.7 5.01
2019-07-31 6,784,000,000.0 4,930,000,000.0 27.33 n/a

Intuit Benefits From Positive Market Sentiment

Intuit Inc. provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. It's average analyst rating is buy, and at its current price of $368.55, it is trading -28.57% below its average target price. It's percentage of shorted shares is less than 1%, and 86.46% of its outstanding shares are owned by institutional investors -- from which we can infer there is strong market confidence in the stock.

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The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.