1. Intuit Inc. (NASDAQ:INTU)
Number of Hedge Fund Holders: 86
Business software company Intuit Inc. (NASDAQ:INTU) ranks 1st in our list of the 12 high growth software stocks that are profitable. In November Intuit Inc. (NASDAQ:INTU) posted its fiscal first quarter results. Revenue in the quarter increased by about 29.4% on a YoY basis to come in at $2.6 billion, beating estimates by $100 million. Adjusted EPS in the quarter was $1.66, beating estimates by $0.46. Intuit Inc. (NASDAQ:INTU) said that for full-year 2020 it expects revenue in the range of $14.035 billion to $14.250 billion, which will show growth of about 10%-12%. The consensus estimate for this figure was $14.54 billion.
As of the end of the third quarter of 2022, 86 hedge funds reported owning stakes in Intuit Inc. (NASDAQ:INTU), significantly up from 75 hedge funds in the previous quarter. This shows that hedge fund sentiment for Intuit Inc. (NASDAQ:INTU) is positive.
Fundsmith made the following comment about Intuit Inc. (NASDAQ:INTU) in its 2022 yearly investor letter:
“Take the example of Microsoft and Intuit Inc. (NASDAQ:INTU). Microsoft shares are currently being valued at a P/E ratio of 25.0 times the consensus EPS estimate for the fiscal year ending June 2023. Meanwhile, Intuit is being valued at 28.4 times the non-GAAP consensus estimate for the fiscal year ending July 2023. Many investors and analysts may accept that Intuit is trading at a higher multiple given expectations of greater growth potential. However, Intuit removes share-based compensation from their non-GAAP EPS whereas Microsoft does not. Given that Intuit’s GAAP EPS guidance for the year ending 31st July 2023 is $6.92–$7.22, its non-GAAP guidance is $13.59–$13.89, and the consensus estimate for 2023 EPS is at $13.69, it seems clear that most sell-side analysts are accepting the company’s non-GAAP adjustments, which includes the removal of some $1.8bn of share-based compensation, in their estimates. If we include the impact of share-based compensation in Intuit’s 2023 EPS to make a more apples-to-apples comparison with Microsoft based upon GAAP EPS, Intuit’s 2023 EPS would be closer to $9, meaning that the shares would be trading at a multiple of about 43 times. I think investors and analysts may find a premium of 14% for Intuit over Microsoft (28.4 times versus 25.0 times) to be reasonable. I’m not so sure they are fully aware that Intuit shares are actually trading at a premium of 73% if share-based compensation is treated in the same manner between the two companies.
Many investors and analysts, including us, look to cash flow metrics more than accrual profits. Unfortunately, share-based compensation may cause distortions in cash flow metrics as well, even when they follow GAAP. Under GAAP, share-based compensation is added back in the cash flow from operating activities, which in turn is used in the computation of free cash flow. ..” (Click here to read the full text)
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