Intuit Starts to Mature

Shares of Intuit NASDAQ: INTC closed down over 4% on Friday following the company’s fiscal first-quarter earnings release on Thursday evening. Friday’s sharp drop came after a 10% rally in the previous fortnight and went against the topline results. Intuit smashed analyst expectations and delivered EPS of $0.41 a share against estimate for $0.26 a share. This gave earnings an impressive year-on-year growth of over 40% while sales rose 15%.

The California based financial software company that is most well known through its QuickBooks and TurboTax applications is seeing impressive growth both internationally and domestically. The QuickBooks Online segment, marketed towards small businesses, grew over 40% with 60% of its revenue coming from international customers.

However, the devil was in the detail and Wall Street was quick to latch onto management’s tepid guidance for the coming quarter.

With a P/E ratio of 44, there’s talk of the current share price being a bit rich compared to fundamentals and so any potential future headwinds are always going to spook investors. That said, however, Thursday’s release painted a very promising picture and was the fifth quarter in a row that beat expectations.

Management deserves praise for constantly looking at ways to expand and grow. Aside from their ongoing march into international territory, the company has branched out to providing payroll solutions and financing options to small businesses. With these initiatives alongside their accounting and tax preparation software, leadership seems to be truly positioning the company as the go-to solution for any budding entrepreneurs.

Short Term Technical Pressure

Surprisingly, from 2011 through 2017, shares of INTU tracked the performance of the tech-heavy NASDAQ index very closely. They only really broke away in the summer of 2018 but have gone on to stretch out their lead, even more, this year.

INTC shares hit an all-time high after August’s release but are but now down over 10% from those levels. It’s reasonable to expect them to bounce around a little as the market adjusts for the fresh forecast. Friday’s drop brought shares below both the 50-day moving average and the 200-day moving average before they pulled back a little and settled right on the latter at the close.

Technically, bulls are under pressure and it’s critical that shares hold the $240-$250 range during the coming weeks. Any move below there and it will look as if investors view these levels to be way overcooked considering management’s guidance and we’d likely see a move towards the $220 mark.

Wherever and whenever shares do start to consolidate again, investors would do well to consider the business case for getting involved. This is a company that has a strong grip on its niche market, whose products are used by millions of people every year and who have an agreement with the IRS that stops the latter from providing their own in-house tax filing system.

Their closest competitor could be considered H&R Block NYSE: HRB but their shares are trading at 2002 levels. Not exactly fear-inducing.

Long term Fundamental Promise

The share price may have had a little too much hope built into it going into these earnings but the fundamentals remain impressively strong. For those looking to get involved, it could be worth letting Wall Street digest this report and to watch for a move in the stock up and out of consolidation. If shares can breakthrough through near term resistance of $292, they’re in a great position to make a run for all-time highs at $296 and beyond. Intuit shares have rallied over 1000% in the past decade and it’s only natural for both their growth and investor’s expectations to mature.

We appear to be beginning that phase now and future growth in share price will likely be driven more by actual results than by potential future results. Given this is a $70 billion company that’s still looking at double-digit growth year over year, a little maturation should make the stock no less attractive.