Investors Still Waiting For A Pull Back In Intuit Inc. (NASDAQ:INTU)

Intuit Inc. +1.36% Post

Intuit Inc.

INTU

670.15

670.15

+1.36%

0.00% Post

Intuit Inc.'s (NASDAQ:INTU) price-to-earnings (or "P/E") ratio of 65.7x might make it look like a strong sell right now compared to the market in the United States, where around half of the companies have P/E ratios below 17x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Intuit as its earnings have risen in spite of the market's earnings going into reverse. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Intuit

pe-multiple-vs-industry
NasdaqGS:INTU Price to Earnings Ratio vs Industry March 29th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Intuit.

What Are Growth Metrics Telling Us About The High P/E?

Intuit's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 43% last year. The latest three year period has also seen an excellent 49% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 20% per annum during the coming three years according to the analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10% per year, which is noticeably less attractive.

In light of this, it's understandable that Intuit's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Intuit maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Intuit you should know about.

You might be able to find a better investment than Intuit. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Every question you ask will be answered
Scan the QR code to contact us
whatsapp
Also you can contact us via