Yahoo Finance Intuit Inc. (NASDAQ:INTU): The Yield That Matters The Most
Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Intuit Inc. (NASDAQ:INTU) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. This difference directly flows down to how much the stock is worth. Operating in the industry, INTU is currently valued at US$61b. Today we will examine INTU’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.
See our latest analysis for Intuit
What is Intuit’s cash yield?
Intuit’s free cash flow (FCF) is the level of cash flow the business generates from its operational activities, after it reinvests in the company as capital expenditure. This type of expense is needed for Intuit to continue to grow, or at least, maintain its current operations.
There are two methods I will use to evaluate the quality of Intuit’s FCF: firstly, I will measure its FCF yield relative to the market index yield; secondly, I will examine whether its operating cash flow will continue to grow into the future, which will give us a sense of sustainability.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
Intuit’s yield of 1.8% indicates its sub-standard capacity to generate cash, compared to the stock market index as a whole, accounting for the size differential. This means investors are taking on more concentrated risk on Intuit but are not being adequately rewarded for doing so.
What’s the cash flow outlook for Intuit?
Another important consideration is whether this return is likely to be maintained over the next couple of years. We can gauge this by looking at INTU’s expected operating cash flows. In the next couple of years, the company is expected to grow its cash from operations at a double-digit rate of 27%, ramping up from its current levels of US$2.0b to US$2.6b in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, INTU’s operating cash flow growth is expected to decline from a rate of 15% next year, to 10% in the following year. However the overall picture seems encouraging, should capital expenditure levels maintain at an appropriate level.
Next Steps:
Given a low free cash flow yield, on the basis of cash, Intuit becomes a less appealing investment. This is because you would be better compensated in terms of cash yield, by investing in the market index, as well as take on lower diversification risk. However, cash is only one aspect of investing. Now you know to keep cash flows in mind, I suggest you continue to research Intuit to get a more holistic view of the company by looking at:
Valuation: What is INTU worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether INTU is currently mispriced by the market.
Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Intuit’s board and the CEO’s back ground.
Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.
