On a surface level, last month’s announcement by the IRS that it’s developing a free electronic tax-filing system appears to clash directly with tax software specialist Intuit (NASDAQ:INTU). Fortunately for shareholders, the company – which offers TurboTax – should remain relevant despite the tax agency’s disclosure. Essentially, complex returns keep the lights on at Intuit, not the simple returns that anyone can do. Therefore, I am bullish on INTU stock.
Intuit Mostly Benefits from Complex Returns
Considering the headlines and nothing else, one would be forgiven for worrying about INTU stock. Fundamentally, the IRS offering an in-house direct file solution competes with tax-prep programs offered by Intuit or other rivals like H&R Block (NYSE:HRB).
More critically, CBS News pointed out that Americans spend more than $11 billion to tax-prep enterprises, accountants, and other tax professionals. However, by offering a direct e-file system, the IRS theoretically eases the cost and time burdens on taxpayers. Effectively, the government appears to undercut a lucrative business service with the best price possible: free.
Nevertheless, as the adage states, there’s no such thing as a free lunch. While fewer taxpayers may log on to Intuit’s website in favor of the new IRS option, such folks aren’t exactly the software specialist’s key consumer demographic.
Tax data research shows that free tax prep programs are available to 70% of the population, that is, people with incomes below $69,000. Typically, these individuals work as employees, thus filing Form W-2. Generally speaking, anyone with basic cognitive abilities can fill out these forms as employers report wages to the IRS.
Where Intuit really earns its keep is in the area of much more complex returns, such as Form 1099 for independent contractors. With workplace trends changing dramatically since the COVID-19 pandemic, INTU stock should actually become more relevant.
Cryptos and the Gig Economy Should Bolster INTU Stock
Two factors that should catalyze broader upside for INTU stock immediately come to mind: the cryptocurrency revolution and burgeoning interest in the gig economy.
Regarding the former point, cryptos primarily skyrocketed (particularly in 2021) because of their underlying mobility in the charts. At any moment, various coins and tokens may soar, potentially yielding life-changing returns. Sure enough, with millions of white-collar workers stuck at home during the pandemic while collecting both paychecks and stimulus checks, participation in blockchain-derived assets surged.
However, understanding the nuances of crypto tax reporting can trip up any investor. Indeed, the very issue of what constitutes a cryptocurrency (as opposed to a publicly traded security) has become a major legal battle. Further, the more investors personally benefit from their crypto endeavors, the greater the incentive to process taxes correctly.
Being rich doesn’t mean much if you land in prison.
On a somewhat similar note, more companies have started to recall their workers back to the office. With fewer opportunities available to trade cryptos, the underlying sector coincidentally struggled. Of course, many, if not most, workers want to hold onto their remote operation privileges. However, amid rising recession concerns, fewer companies will be willing to play ball with their employees.
Therefore, the gig economy could see a spike in participation over the next several years. This dynamic, too, should be beneficial for INTU stock as the tax-filing process for gig workers (i.e., independent contractors) is much different than for employees.
Essentially, with guidance becoming a hot topic rather than mere convenience, the IRS’ in-house filing system probably won’t swing the needle.
INTU Stock is Pricey but Possibly Worth It
In all fairness, TipRanks contributor Nikolaos Sismanis raised an excellent point about INTU stock back in April. Although Intuit consistently delivers robust growth despite significant macroeconomic challenges, investors pay a premium for the privilege.
Back at the time of publication, Sismanis wrote that even with INTU stock falling from its late-2021 peak, “Intuit is still trading at a rich 32 times forward earnings multiple (at the midpoint of management’s guidance), implying a meager 3.12% earnings yield.”
While it’s a pricey investment, Intuit continues to post encouraging numbers. For example, in its quarter ended April 2023, the company rang up sales of $6.02 billion. This tally beat out the year-ago quarter’s result of $5.63 billion to the tune of 6.92%.
Combined with burgeoning fundamental relevancies (cryptos, gig worker taxes), INTU stock is the smart speculator’s contrarian play.
Is Intuit Stock a Buy or Sell?
Turning to Wall Street, INTU stock has a Strong Buy consensus rating based on 15 Buys, two Holds, and zero Sell ratings. The average INTU price target is $498.31, implying 17.81% upside potential.
The Takeaway: The IRS News Is Just Noise for INTU Stock
On paper, it seems that the IRS offering a direct filing system would undercut Intuit. Frankly, it really doesn’t because Intuit earns the big bucks off providing guidance for complex returns. Until the IRS figures out a way to address that component, INTU stock remains quite relevant.
