Software company Intuit stunned Wall Street today as it surged to $624.93, marking a 12.5% change compared to the S&P 500 and the Nasdaq indices, which logged -0.0% and None% respectively. INTU is -12.36% below its average analyst target price of $713.04, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Intuit has underperfomed the S&P 500 by 33.2%, moving -15.7%.
Intuit Inc. provides financial management, compliance, and marketing products and services in the United States. The companyis in the technology sector, which groups together a wide range of industries including consumer electronics, software, computer hardware, scientific instruments and IT services. Legendary investor Warren Buffet once stated that he would never invest in technology companies. Apple is now one of his largest holdings.
The risks inherent to the technology sector are clear, but investors simply cannot ignore the potential for strong returns. Even with the lessons learnt in the 2000 tech bubble, the market continues to highly value the promise of technological innovation and the ability for these companies to build and occupy new markets.
Intuit's trailing 12 month P/E ratio is 58.6, based on its trailing EPS of $10.67. The company has a forward P/E ratio of 28.3 according to its forward EPS of $22.23 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio of US technology companies is 30.01, and the S&P 500 average is 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Intuit's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2024 | 4,884,000 | 191,000 | 4,693,000 | -2.96 |
| 2023 | 5,046,000 | 210,000 | 4,836,000 | 29.58 |
| 2022 | 3,889,000 | 157,000 | 3,732,000 | 16.73 |
| 2021 | 3,250,000 | 53,000 | 3,197,000 | 35.75 |
| 2020 | 2,414,000 | 59,000 | 2,355,000 | 4.76 |
| 2019 | 2,324,000 | 76,000 | 2,248,000 |
- Average free cash flow: $3.51 Billion
- Average free cash flow growth rate: 15.3 %
- Coefficient of variability (the lower the better): 0.0 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in INTU have received an annualized dividend yield of 0.6% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). As of the third quarter of 2024, the mean P/B ratio of the technology sector is 3.91, compared to the S&P 500 average of 4.74. The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Intuit's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 9.75, so it's likely that equity investors are over-valuing the company's assets.
As of third quarter of 2024, Intuit is likely fairly valued because it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and generally positive cash flows that are on an upwards course. The stock has mixed growth prospects because of its decent operating margins with a stable trend, and an inflated PEG ratio. We hope this analysis will inspire you to do your own research into INTU's fundamental values -- especially their trends over time.
