Stock splits generally follow sustained share price increases, which typically follow from consistently strong financial results. In that way, stock splits tend to point investors toward businesses with solid fundamentals. It's the price appreciation, not the stock split, that is the important signal.
Keeping that in mind, Intuit (INTU +1.59%) returned 229% over the last five years, more than doubling the return of the S&P 500. That price appreciation can be ascribed to a series of strong financial performances arising from its leadership in U.S. tax preparation and accounting software. Intuit is well positioned to maintain that momentum thanks to efforts to infuse its products with artificial intelligence.
Intuit is undoubtedly a stock split candidate in 2024, but patient investors should consider buying the stock whether that split happens or not. Here's why.
NASDAQ: INTU
Key Data Points
Intuit started fiscal 2024 with solid financial results
Intuit breaks its business into three primary segments. The consumer group includes TurboTax tax preparation software and services for consumers and small businesses. The small business and self-employed group comprises QuickBooks accounting software and a broad range of adjacent services, including solutions for marketing, payment processing, and payroll. Finally, Credit Karma is a financial platform that connects consumers with credit cards, loans, and insurance products.
Intuit reported strong financial results in the first quarter of fiscal 2024 (ended Oct. 31), beating expectations on the top and bottom lines. Revenue increased 15% to $3 billion, driven by particularly strong growth in consumer group and the small business and self-employed group products. Additionally, non-GAAP net income soared 45% to $960 million.
For the full year, management expects revenue growth ranging from 11% to 12%, and non-GAAP earnings-per-share growth ranging from 12% to 14%. But investors can expect similar momentum in subsequent years, as Intuit believes it has tapped just 5% of its $300 billion addressable market.
Intuit is leaning into artificial intelligence
Intuit is the gold standard in U.S. tax preparation and accounting software. TurboTax holds a 73% market share, and QuickBooks holds an 80% market share. Intuit has already improved its ability to attract and monetize users with TurboTax Live and QuickBooks Live, which provide on-demand access to tax and bookkeeping professionals, but there is plenty of room to increase adoption.
Additionally, leadership in accounting software positions Intuit to cross-sell small businesses with adjacent solutions for marketing, payment processing, and payroll. The company also has an opportunity to bring 40 million Credit Karma users to TurboTax, and steer 90 million TurboTax users toward Credit Karma Money savings and checking accounts. Management believes artificial intelligence (AI) can draw new users and improve monetization by driving cross-platform adoption.
On that note, Intuit recently launched a generative AI assistant (Intuit Assist) that can surface recommendations and automate workflows to improve the user experience across TurboTax, Credit Karma, and QuickBooks. For instance, Intuit Assist can provide explanations and discover deductions that ultimately reduce tax preparation time for TurboTax users. Similarly, it can simplify the onboarding process, answer business questions, and create marketing campaigns for QuickBooks users.
Additionally, Intuit Assist can help consumers get refunds faster by creating Credit Karma Money accounts, and it can recommend adjacent products that help small businesses grow more efficiently. It can also steer users toward TurboTax Live and QuickBooks Live in situations that call for professional advice. In that way, management believes Intuit Assist will improve user monetization across all three product groups.
With that in mind, Intuit expects long-term revenue growth of 10% annually in consumer group products, 17.5% annually in the small business and self-employed group products, and 22.5% annually in Credit Karma. That implies total revenue growth in the mid-teens over the next three to five years.
Intuit stock is worth buying at its current price
Intuit has a durable competitive advantage built on brand authority and switching costs. Namely, TurboTax and QuickBooks are the gold standards in their respective categories, and it would be time consuming and costly for users to switch products. That affords Intuit a certain degree of pricing power, a quality that Warren Buffett prizes in a business.
Going forward, Morningstar analysts expect Intuit to grow revenue at 13% annually over the next five years. That aligns with projections from management, and it makes the current valuation of 11.5 times sales appear reasonable. For context, that multiple is identical to the three-year average.
Based on its current price, I think Intuit could produce market-beating returns over the next five years, just as it did over the last five years. That is true whether or not the company splits its stock, though news of a stock split could certainly draw attention to Intuit and put upward pressure on its share price. In either case, investors should feel comfortable buying a small position in this growth stock today.
