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Why Did Intuit Gain 16% in October?

By Ryan Downie – Nov 6, 2021 at 11:22PM

Key Points

  • Intuit stock dropped to more attractive valuations after its Mailchimp acquisition was announced.
  • Intuit added mobile banking to its small business platform, allowing users to receive payments in the platform.
  • Intuit has excellent fundamental strength, but the stock is expensive.

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Intuit opened the door to more growth by adding mobile banking to its accounting software.

What happened

Intuit (INTU 2.65%) stock climbed 16% in October, according to data from S&P Global Market Intelligence.

The stock reversed declines that followed its announced acquisition of Mailchimp in September. Investors were pleased when Intuit unveiled its new mobile banking software, Money by Quickbooks, on Oct. 19. Intuit will play an even bigger role in small business operations, with marketing and payment transfer functions in addition to the bookkeeping and billing functions that made it famous.

INTU Total Return Level Chart

INTU Total Return Level data by YCharts

So what

Intuit is one of the more established fintech stocks, led by products under the Quickbooks, TurboTax, Mint, and Credit Karma brands. It offers a range of valuable financial services to both consumers and small businesses. That's an envious position to occupy, and it creates a major economic moat -- an advantage that's only getting wider with the new business units being rolled out.

Intuit is delivering impressive growth, too. The company is forecasting 15% revenue growth over the next 12 months, which is about the rate that it's been growing over the past few years. Investors should be excited by Intuit's new opportunities moving forward. Users should be able to generate invoices, then request, receive, and send payment transfers all in one platform. That's really convenient for business owners. Nearly 30 million small businesses use QuickBooks, so that could translate to serious top-line gains in the future.

Small business owner in cafe doing accounting paperwork

Image source: Getty Images.

Now what

Investors should be optimistic about Intuit. It has a stable business with major competitive advantages, and it's likely to expand another 15% this year. The recently announced moves should extend that growth and competitive advantage years into the future. All of that is evidence of a well-run company with strong fundamentals.

Investors should expect to pay a premium to buy any stock with those strong characteristics, and Intuit is absolutely no exception. The stock's forward P/E ratio is nearly 55, which is high, even accounting for growth. Its PEG ratio is above 3. Intuit's high price-to-sales of 17.5 indicates that it's not a matter of temporarily low earnings, either. Years of strong fundamental performance are already assumed in the stock's price.

Intuit is fine for long-term growth investors, but its aggressive valuation has skewed the risk-reward balance over the medium term.

Ryan Downie has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Intuit. The Motley Fool has a disclosure policy.

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