Intuit Stock Up 10% Today – Time to Buy INTU Stock?

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The price of Intuit stock is surging nearly 10% in pre-market stock trading action today following the release of the firm’s financial results covering the first quarter of its 2022 fiscal year after it raised its guidance for the full year and beat analysts’ estimates for the period.

For the three months ended on 31 October, the company reported total net revenues of $2 billion resulting in a 51.7% jump compared to the same period a year ago while beating the market’s estimates for the period by around 11%.

Product sales advanced 8.2% compared to a year ago at $397 million while revenues from services experienced an eye-popping 68.4% year-on-year jump at $1.61 billion.

The management cited the addition of Credit Karma – a company it acquired back in December 2020 – as one of the causes for this accelerated growth in its top-line performance.

Sales from this unit landed at $418 million during these three months, currently accounting for around 21% of the company’s top-line, while revenues from QuickBooks Online grew 32% on a year-on-year basis.

Intuit also reported non-GAAP diluted earnings per share of $1.53 resulting in a 63% jump compared to the figures reported back in Q1 2021 while also exceeding the market’s consensus estimate of $0.97 for the quarter by a long shot.

Meanwhile, guidance for the 2022 fiscal year was raised amid the incorporation of the sales generated by the recently acquired Mailchimp and some “strong momentum” identified for Intuit’s flagship products.

In this regard, the management ramped up its sales estimates for the full 2022 fiscal year to a range between $12.17 and $12.3 billion while it is estimating adjusted earnings per share of up to $11.64 per share. Analysts were forecasting sales of up to $11.15 billion and adjusted earnings per share of $11.23.

“We continue to see strong momentum and proof that our Big Bets are further positioning us for durable growth in the future, and we’re delighted that Mailchimp has joined Intuit”, stated Sasan Goodarzi, Intuit’s Chief Executive.

Can today’s encouraging quarterly results keep pushing the price of Intuit stock higher in the future? In this article, I’ll be assessing the price action and fundamentals of this tech stock to possibly answer that question.

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Intuit Stock – Technical Analysis

intuit stock
Intuit (INTU) price chart – 1-day candles with multiple indicators – Source: TradingView

The performance of Intuit stock so far this year has been outstanding as the stock has advanced over 66% so far in 2021 on top of the 45% gain it delivered to investors during 2020.

An acceleration in the adoption of digital solutions by businesses from all around the world during the pandemic has lifted the valuation of this business solutions provider and the chart above shows how strong the uptrend has been since the stock recovered from the February-March pandemic crash.

However, positive momentum seems to be getting out of hand for Intuit as indicated by the Relative Strength Index (RSI), which recently surged to its highest level since September 2020 while the MACD has posted its highest reading in many many years.

Meanwhile, the price of Intuit stock is currently standing 29.4% above its 200-day simple moving average while this percentage will climb to 45.7% if today’s pre-market uptick spills over to the live session.

This indicates that the stock is highly stretched compared to its mid-term moving averages and this increases the risk of a sharp decline in the price as the market appears to be getting too ahead of itself.

That said, it would be positive to assess the fundamentals of the business to see if its current valuation is also drifting too far from what one would consider healthy.

Intuit Stock – Fundamental Analysis

Intuit’s sales have been growing rapidly since 2017 at a rate of around 12.5% per year on average and the acquisition of Credit Karma and Mailchimp should keep contributing to pushing the firm’s top-line results higher in the future.

Meanwhile, its GAAP operating margin has ranged between 25% and 30% in past years while the firm’s net margin has ranged from 18% to 23% during a similar period.

Intuit is also a conservatively financed entity with as little as $2 billion in long-term debt on total assets of $15.5 billion including nearly $4 billion in cash and equivalents.

At today’s pre-market price of around $710 per share, the firm is being valued at 61 times its forecasted earnings for 2022. The stock displays a similar multiple when one uses its free cash flow per share for the past twelve months.

This multiple seems particularly high when compared to Intuit’s forecasted earnings growth of 19.5% for the fiscal year that just started.

Based on these metrics, it seems that the market is overpricing the company based on its ability to grow its earnings in the future. As a result, the outlook for Intuit stock is bearish as the price is dangerously stretched from its mid-term mean while its valuation seems lofty based on the company’s growth prospects.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.