Yahoo Finance Investors Appear Satisfied With Intuit Inc.'s (NASDAQ:INTU) Prospects
With a price-to-earnings (or "P/E") ratio of 53.9x Intuit Inc. (NASDAQ:INTU) may be sending very bearish signals at the moment, given that almost half of all companies in the United States have P/E ratios under 14x and even P/E's lower than 8x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
While the market has experienced earnings growth lately, Intuit's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
View our latest analysis for Intuit
Keen to find out how analysts think Intuit's future stacks up against the industry? In that case, our free report is a great place to start.
How Is Intuit's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as Intuit's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 3.4%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 23% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.
Looking ahead now, EPS is anticipated to climb by 22% 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 9.0% per annum, 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.
What We Can Learn From Intuit's P/E?
Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
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.
Plus, you should also learn about this 1 warning sign we've spotted with Intuit.
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 P/E below 20x (but have proven they can grow earnings).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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