Intuit Inc (NASDAQ:INTU) is the long-standing tax and accounting software standard that’s used by over 50 million businesses and consumers. It’s one of the earliest instances of a successful fintech company that expanded its product offerings beyond tax services to serve customers year-round.
The company’s market cap hit new highs in 2021, leading investors to question “is Intuit stock a buy or sell?”
Some investors fear it may have plateaued and could stall upon reaching $150 billion, while optimistic analysts forecast it could rise as much as another 25% in the coming years. Which is right?
Intuit At A Glance
Intuit is a Mountain View, California-based financial software company. Its flagship products include:
- TurboTax for tax preparation,
- QuickBooks for small business accounting, and
- Mint for personal finance.
This forms a trifecta that allows the little guy to compete with major corporations and became a game changer at the turn of the century.
It started with Quicken in the 1980s, and it wasn’t long before Microsoft (MSFT) released Microsoft Money to compete. This set off a pricing war that pitted Intuit against one of the largest tech giants of all time, yet it survived.
Intuit went public in March 1993, after the Department of Justice rejected an estimated $2 billion buyout offer from Microsoft. This intensified the battle between the two, and the company underwent several reorganizations over the proceeding decade.
However, it continued to grow, even while it faces litigation and regulation over its practices.
Why Is Intuit Stock So High?
Investors have lots of reasons to be bullish about Intuit.
For starters its balance sheet is strong. Intuit has over $4 billion in liquidity. But most of all Intuit has strong growth projections, which are fueled by acquisitions that have enhanced its trajectory higher. Its strategic purchase of Credit Karma opened another avenue of growth.
Of course, the company did take a hit in 2020 when growth slowed to just one percent from the previous fiscal year. Reported income also fell over the past year because of the $8.1 billion it shelled out on Credit Karma. It spent a whopping $4 billion to pay down debts and get its cash in a better position.
Why is Intuit stock so high in a nutshell? Sales. Top line revenues grew 39 percent year-over-year during the first quarter of this year’s tax season. This helped it double from $2 billion cash on hand in the first quarter to $4 billion by the middle of the year.
Intuit Stock Forecast: Limited Upside?
Intuit’s stock is already sky high, and that potentially limits the upside payoff of investing today. Skeptics argue that TurboTax has limited growth potential – it already has full penetration and a slew of well-funded competitor platforms.
Despite the high price tag, it’s still a relative value compared to other fintech plays. It’s valued at about 65 times annual earnings, which is just under the P/E ratio for Paypal Holdings Inc (NASDAQ:PYPL) – both are steals when compared to Square Inc’s (NYSE:SQ) 420x multiple.
Intuit remains an attractive buy, especially with its healthy $2.36 annual dividend payout. The combination of growth and dividends entices many but it’s worth noting that fair market value is $272 per share, representing modest upside from current INTU share price levels.
73% Market Share Reflects Dominance
Whereas TurboTax is already a dominant force in the tax market, QuickBooks, Mint, and Credit Karma round out the firm’s broad range of financial offerings for its customer base.
In fact, this helped to protect the company from lower-cost offerings by rivals. Its long-standing enterprise partnerships make it straightforward to personalize solutions for each individual customer.
Because of this, Intuit is riding as the original fintech firm while defending its moat against established rivals. Sure, Xero and others are vying for its customer base, but Intuit has brand value that is not easily disrupted and a market share that remains the envy of those snapping at its heels. Turbotax for example currently enjoys about 73% of sales.
Risks of Buying Intuit Stock
Intuit is waiting to assess the results of a class action lawsuit, several state-level investigations, and one from the Federal Trade Commission.
The company weathered bad publicity for several years leading into the 2020s due to alleged bad business practices. It was accused of falsely misleading customers to use its paid version of TurboTax over its free version.
Ultimately, the outcome is unlikely to put more than a dent in the company’s bottom line because of its impressive cash reserve. However, it’s never wise to count out the government’s ability to levy historically high fines.
Is Intuit Stock a Buy or Sell? The Bottom Line
Intuit is a long-standing financial technology company that offers a variety of financial products and services. It focuses primarily on taxes, accounting, and personal finance, helping to fill in gaps left open by the traditional finance sector.
That helps the company to grow revenues by upselling enterprise customers while handling consumer taxes at lower costs.
Although financial conditions are bright now, the company is at an all-time high market capitalization, and growth potential is limited. Today’s investors are likely to face limited returns at a time when some major legal decisions will be made with respect to regulatory fines.
If you already own Intuit, there are few compelling reasons to sell, but buying in now has a less attractive reward to risk payoff graph.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.