Intuit Is A Good Deal And Forming A Bottoming Pattern

You'd have to go back to 2008 to see a sell-off in Intuit Inc INTU greater than 40%. From that low, the stock advanced more than 1400% until a 39% decline in 2020. Off of the 2020 low, it advanced 282% before falling into the current decline.

In other words, buying deep declines in this stock have paid off.

Since late 2022, INTU has fallen as much as 53%, and the stock is currently about 44% below its late 2021 high of $716.86.

A big decline isn't a good reason to buy a stock...unless it is a good stock, and Intuit is.

• Earnings per share (EPS) have increased an average of 13.5% per year over the last five years.
• EPS is expected to grow 15% per year over the next five years.
• Sales have increased by 20.3% per year over the last five years.
• INTU has outpaced S&P 500 returns by an average of 9.3% per year over the last 10 years.
• The dividend yield is 0.8%, but the company has increased the dividend payout by an average of 14.9% per year over the last five years.

So The Company Is Pretty Solid, But Why Buy It Now?

Since October of last year, the stock has been forming a rounding bottom pattern.

It occurs when selling momentum slows and the price has a harder moving lower (the down moves get smaller).

Then the price starts shifting up. The price makes higher swing lows and higher swing highs. 

Essentially, it is a slow transition from a downtrend into the initial stages of an uptrend. 

The strategy is to wait for the price to make a new swing high and then buy on the pullback once the stock starts moving up again. A stop loss can be placed below the major low of the entire pattern or below a prior swing low (see red lines on the chart below).

A long trade already occurred back in late 2022 based on a smaller pattern. So far that trade is working out.

Another opportunity is occurring now. The price made a new swing high on Feb. 2 (above the Dec. 13 swing high) and then pulled back. This area around $408 presents another opportunity to get in. 

Entering near $408 with a stop loss near $370 puts the risk of the trade at just under 10%. 

That's a decent risk for a company that is growing. From a risk/reward perspective, hold for at least 30% upside. Over the long term the stock could generate a much higher return. A move back to $615 is more than 50% upside from current levels.

As long as the company keeps growing, the shares should be able to reclaim and exceed the $716.86 high over the next several years.

From a risk-reward perspective, this is an attractive buy-and-hold stock. That said, the stock could continue dropping or move sideways instead of moving higher. That's why controlling risk is important.

Disclaimer: The author doesn't currently hold a position, but may initiate one over the next two weeks.