How often does a company truly live up to its chosen corporate name?
Too often, we see Pegasystems (NASDAQ:PEGA) that can't fly, or International Business Machines (NYSE:IBM) selling off their businesses to international competitors. In contrast, as we saw last quarter, and see again this quarter, Motley Fool Inside Value pick Intuit (NASDAQ:INTU) truly has a gift for predicting its future.
Intuit, that force powering so many small businesses' accounting departments, that helper for the rest of us during tax time, reported its Q4 and full-year fiscal 2005 earnings yesterday evening. In doing so, it once again demonstrated prowess at guesstimating its future. Three months ago, Intuit predicted it would lose somewhere between $0.09 and $0.12 in its fourth, final, and historically unprofitable quarter. And in October 2004, the company predicted taking in $2 billion in revenues and booking between $1.93 and $2.01 in profits per share. The results are now in, so let's see how Intuit did.
For the quarter, the company lost $0.11 per share (a per-share loss magnified by the effect of the company buying back 5.6% of its shares). So score one for Intuit.
For the year, the company booked $2.04 billion in revenues -- a 13.1% increase over fiscal 2004 and spot-on with its prediction. But on the profits front, Intuit blew the lid off the joint, recording $2.03 per diluted share for a 28.5% year-over-year increase. Outstanding.
Speaking of which, let me take this opportunity to harp once more on the double-edged cutting action of stock buybacks and stock dilution. We looked at the pernicious effects of stock dilution on the (hypothetical, future) profits of mobile computer maker Xybernaut (OTC BB: XYBRQ) way back in 2004. There we saw how stock dilution can make an unprofitable company look less bad than it truly is, by spreading out its losses over an ever-greater number of shares. The flip side to that effect would be to diminish profits per share, if they ever materialized. (As it turned out, rather than become profitable, Xybernaut filed for bankruptcy instead.)
Intuit proves the opposite of that thesis. In fiscal Q4, its shrinking share count magnified the size of its losses on a per-share basis, by divvying them up among fewer shares than existed last year. But overall in fiscal 2005, the lesser number of shares supercharged Intuit's 20% firmwide profits increase by the time they reached the per-share level. It's just one more way that this super-successful Inside Value pick has rewarded its shareholders.
Since its first recommendation in the Inside Value newsletter six months ago, Intuit has already risen nearly 19% against a less than 2% gain for the S&P 500. Which raises the question: If you like buying undervalued stocks before they go up, why aren't you a subscriber? Click here and take a free trial for a full month. Then stay if you love it -- leave if you don't. There's no obligation to buy, and you have our word on that.
Fool contributor Rich Smith does not own shares of any company named above.
