Intuit Inc. (INTU): There Will Be A Growing Need For This Kind Of Software

Page 1 of 2

Intuit Inc. (NASDAQ:INTU) is a software maker with some of the most recognizable products around, such as QuickBooks, TurboTax, and Quicken.  Intuit has done very well over the past decade or so, with steadily increasing revenues every year.  Also, Intuit does a good job of creating value for its shareholders, with an excellent buyback program and a recently implemented dividend.  With the increasing trend of doing bookkeeping and taxes electronically (and through tax professionals), I believe there is still growth to be had here.

Profile and Future Growth

Intuit makes products in four main categories: Small Business, Tax, Financial Services, and Other Businesses.  The Small Business and Tax segments combine for 85% of the company’s revenues.  Intuit’s tax software has been the market leader for years, and continues to grow in popularity as less people file paper tax returns over time.

According to the U.S. Treasury, over 90% of 2011 tax returns were filed electronically, leaving some, but little room to grow.  Where the company sees growth coming is producing software for professionals such as accountants who service customers.  While Intuit already makes software aimed at professionals and small businesses, this is an area where there is more growth opportunities.

Analysts see Intuit’s revenues growing 9% in 2013 and 10% in 2014, which is consistent with the revenue chart above, so no slowdown in the company’s revenue growth is expected.

Valuation and Competition

Intuit is fairly valued right now, considering both its growth and leading market share.  The stock currently trades for 21.2 times 2012’s earnings, which the consensus expects to rise to $3.36, $3.73, and $4.20 over the next three years, or a 12.2% average annual earnings growth rate.

As a general rule, as long as a company does not have excessive debt, or a lot of cash on the balance sheet, I look for companies that trade for a multiple that is less than twice the projected earnings growth rate.  So, Intuit meets my qualifications since twice its growth rate is 24.4, and the P/E multiple is significantly less.

Although there are few companies that I would call direct competitors to Intuit, for comparison’s sake, I would like to briefly look at two companies that are similar to Intuit, but in different ways. Microsoft Corporation (NASDAQ:MSFT), the biggest software producer in the world, and H&R Block, Inc. (NYSE:HRB) a leading tax preparer.

Microsoft is usually a good indicator of the state of the software industry.  Although it is an extremely large company by comparison, there are many aspects of Microsoft’s business model that are similar to Intuit.  The companies have similar growth patterns, as evidenced by comparing the revenue charts of both companies.  Surprisingly, Intuit’s revenue growth has been even more consistent than “rock-solid” Microsoft!

Microsoft trades at a lower multiple of 15 times earnings, due mostly to weakness in their Windows 8 release and the lower projected growth.  When a company gets so large, a growth rate in the double digits is difficult to maintain.  However, as I said, since it is more covered in the press, Microsoft can be a great way to gauge trends in the industry.

Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Largest Pharmaceutical Companies In the World

The 10 Most Expensive Android Apps

The 9 Most Expensive Designer Bags in the World

The 7 Most Expensive Real Estate in the World

The 10 Most Expensive eBay Items Ever Sold

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!