On Friday, shares of Intuit (NASDAQ:INTU) ripped 9.8%. In fact, the entire market rallied more than 9%. Maybe Thursday will prove to be the bottom, but I doubt it at this stage. If the market hasn’t bottomed, INTU stock likely hasn’t either.
Some investors view Friday’s rally as a good sign. At this stage, any relief feels good. But the truth of the matter is, the Dow Jones has gone from all-time highs to a bear market in 19 trading sessions. That’s almost half the time it took the next fastest bear market, at 36 sessions.
Maybe the bottom is in, but I personally am not ready to commit to that. Intuit isn’t necessarily a bad company, but I’m not reaching for it amid this onslaught.
The Technicals for INTU Stock
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The charts do not look great for INTU stock — or most any other stock for that matter. There is virtually nowhere to hide in this mess, including gold, bitcoin and barely bonds.
After Friday’s bounce, Intuit shares are down just 14.5% from the highs. That’s much better than the overall indices, and support is actually holding up where it should. But the stock still below all of its major moving averages.
A few weeks ago, we saw a pullback down to the 100-day and 200-day moving averages that held as support. However, a few trading sessions later and the selling pressure overwhelmed the stock, as support gives way. The $235 level has acted as support for now, which is where bulls should have looked for it to come into play. It’s also where the 100-week moving average comes into play, as seen below.
That’s a good sign.
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Now the question is, will we retest this recent low, and if so, will it again act as support? I also want to see if INTU stock can reclaim its key moving averages should the rebound continue.
Below $235 and the $215 to $220 zone could be next, followed by $200 and then $185. I’m not sure if we get to some or all of these marks, but investors should at least know where they are. A decline to the last figure — $185 — would represent an approximate 40% decline in the stock.
Valuation of Intuit
INTU stock is not a cheap one. Shares trades at roughly 34 times this year’s earnings estimate of $7.57 per share. If the company reports in-line results, that’s up just 12% year-over-year.
That said, this company is pretty steady from a financial point of view. Analysts expect sales to grow 11.6% this year and 11.7% next year. In both 2020 and 2021, estimates call for earnings growth in the 12% range.
In the last 12 months, roughly 45% of the company’s revenue came during the fiscal quarter ending in April. In other words, tax season. While that revenue may be displaced into next quarter due to the coronavirus and certain delays, it should still hit Intuit’s books eventually.
From that perspective, Intuit seems fine. However, paying 34 times earnings in this high-volatility environment is something I don’t feel comfortable doing. In other words, the business is not my concern, the valuation is.
M&A Pain?
In February, Intuit announced a $7.1 billion cash and stock deal to acquire Credit Karma. On the plus side, diversifying its business away from a once-a-year revenue driver is a smart idea.
As of its most recent quarter, Intuit has roughly $2.7 billion in cash and short-term investments. Current assets are healthily above current liabilities, at $3.7 billion vs. $2.2 billion.
While Intuit’s balance sheet is fine, it’s not the strongest out there. In times like these, that may actually be what’s worth chasing. For instance, Microsoft (NASDAQ:MSFT), Facebook (NASDAQ:FB) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) all have lower valuations and stronger balance sheets. That may be a better alternative than INTU stock at this point.
I don’t know that the Credit Karma deal is necessarily a negative. It just muddies the water at a time where the market is doing plenty of muddying on its own. Is INTU stock the worst name to buy right now? Of course not. I just think there could be more downside in the name.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
