Counter Intuit-ive

According to Reuters:

Merrill Lynch said it downgraded the tax-preparation and accounting software maker as the shares were 10 percent to 15 percent overvalued.–The brokerage said the stock’s valuation is now at a premium to software and IT services companies. With no big catalysts on the horizon, there is a higher likelihood of a fall in the share price in the year ahead, it added.

Since one of Intuit’s major products is TurboTax, the company tends to see a huge surge in sales during the first and second calendar quarter each year. So one would expect the company to start performing well right about now. The only thing is, everybody knows all that. And since the market tends to look ahead, the season for Intuit’s stock is the off-season for its fundamentals.

The stock is now trading near the high for the year after hitting a split-adjusted low of $24 in March – the height of tax season. In fact, that $24 level had essentially been a flat line from the 2005 peak approached in November of last year (see Yahoo! historical prices).

Let’s look further back:

  • From April 2005 to November 2005 the stock rallied 23%.
  • From November 2004 to April 2005 the stock declined 16%.
  • From April 2004 to November 2004 the stock rallied 12%.
  • From November 2003 to April 2004 the stock declined 19%.
  • From April 2003 to November 2003 the stock rallied 53%.
  • From November 2002 to April 2003 the stock declined 60%.
  • From April 2002 to November 2002 the stock rallied 52%.
  • From November 2001 to April 2002 the stock declined 23%.
  • From April 2001 to November 2001 the stock rallied 53%.

You get the point. We think Merrill Lynch’s downgrade is the right way to play these odds.

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7 Comments on “Counter Intuit-ive”

  1. [...] Trent presents Counter Intuit-ive posted at Stock Market Beat. [...]

  2. [...] A nice anecdotal post about Intuit’s consistently cyclical performance (INTU). I wouldn’t buy a stock just based on the post, but it’s a fast and fun read. Reminds me of Prepaid Legal (PPD), which apparently became the “cash generator” for the Accounting department at school because it, too, had a predictable cyclical performance for a while. [...]

  3. sounds good to me

  4. [...] Interesting timing, with the stock down approximately 20% from recent highs (and in line with the weak seasonality we warned about). Since the seasonal patterns are there for all to see, one would expect the founder to have noticed them as well. The idea that there may be something more than seasonality could have contributed to Monday’s sell-off. [...]

  5. [...] Intuit has some ’splainin to do, but the funny thing is that none of this is likely what is affecting the stock price. As we have pointed out before, Intuit’s stock price is highly seasonal.  It goes up in anticipation of tax season, but “sells on the news” while tax season is actually here. The confusion around today’s earnings and all the buying and selling is simply part of the overall process – Intuit getting cheaper during tax season, possibly presenting an opportunity to buy shares with your refund in April. The author may hold a position in the securities discussed. The author’s current holdings are as follows: Long: Union Pacific (UNP) put options; Air Products (APD) put options; Bookham (BKHM; Ballard Power (BLDP); Syntax Brillian (BRLC); CMGI (CMGI); Genentech (DNA - Annual Report; Ion Media Networks (ION); Three Five Systems (TFS); IShares Japan (EWJ); StreetTracks Gold (GLD); Starbucks (SBUX); U.S. Oil Fund (USO); Plantronics (PLT) call options; Short: Landstar (LSTR - Annual Report) put options; Plantronics (PLT) put options; [...]

  6. [...] Round 1, Game 6 – WIN! In a resounding win over Counter-Intuitive, my post Understanding Your Financial Fortress moved to the second round and now it faces my friend and MBN compatriot’s post, Ten Unconventional Uses for the Penny, in a battle that hopefully won’t but probably will come down to the wire. Comment in your vote for Round Two 9-16 to help push Financial Fortress to the next level, thanks! [...]

  7. [...] Counter-Intuitive [...]

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