Winning isn't everything. Neither is losing. Intuit (NASDAQ:INTU) seems set to prove that with its upcoming earnings release.
In the context of investing, it pays to remember that even great companies won't "win" (i.e., report profits) all the time. For example, many moviemakers expect to post significant profits declines over the next few quarters, in comparison to their recent blockbuster pasts -- Motley Fool Stock Advisor picks Marvel (NYSE:MVL), DreamWorks Animation (NYSE:DWA), and Pixar (NASDAQ:PIXR) among them.
That's just the nature of the beast, folks. When you've got the feel-good hit of the season playing throughout the land, you're rolling in cash. But a year later, with your last hit in reruns on TNT, a sequel in the works, and nothing much playing in the meantime, well, earnings growth has to take a bit of a breather.
It's called "cyclicality." Some companies, like the moviemakers, suffer through company-specific, multiquarter boom and bust cycles. Others, such as semiconductor makers Intel (NASDAQ:INTC) or AMD (NYSE:AMD), tend to fall into multiyear cycles tied to the purchase, obsolescence, and replacement of people's PCs. Still other companies, such as tax-prep firm H&R Block (NYSE:HRB) or Motley Fool Inside Value pick Intuit, run through their cycles over and over again, year after year. Tax time is suppertime -- that's when everyone buys these companies' goods and services, letting them rake in the dough. But aside from tax time, these companies pretty much duck and cover, try to keep their fixed-cost-derived losses to a minimum, and wait for the gravy train to ride back into town.
Speaking of Intuit, it's about time I got to the point of this column, don't you think? Intuit reports its fiscal first-quarter earnings tomorrow after market close, and analysts expect to see a whole lot of red ink. Predictions range from a loss of $0.25 per share (just as bad as in the year-ago quarter) to a loss of $0.33 per share (32% worse than last year). The consensus has losses ballooning 24% to $0.31 per share. Hooray!
Uh . hooray?
Remember what I told you back in August, Fools: In last year's fiscal Q4, Intuit's losses looked worse than they really were because the company was busily buying back its shares. But just as its losses seemed bigger when divided among a smaller pool of outstanding shares, its 20% firmwide profit growth for all of fiscal 2005 got supercharged on a per-share basis.
What was true last quarter will hold true again tomorrow. The more Intuit "underperforms" analyst estimates tomorrow, the better for long-term shareholders. It will mean that Intuit bought back more shares, magnified the losses for this quarter . and laid the groundwork for turbocharged profits come tax time.
Since its first recommendation in the Motley Fool Inside Value newsletter six months ago, Intuit has already risen roughly 31% against a less-than-4% gain for the S&P 500. If you like buying undervalued stocks before they go up, why aren't you a subscriber? Sign up today for a 30-day free trial subscription.
Fool contributor Rich Smith owns shares of Marvel but of no other company named above. The Fool has a disclosure policy.
