Tuesday, April 14, 2009

Short Now?

Tomorrow is the final day to file federal and state income tax return. My taxes are complete, so there will not be any last minute hair tearing for me. That is not to suggest that I am entirely relaxed. At the last minute I decided to use the tax software application, TurboTax, to file electronically. I entered all the data into the program and, lo and behold, TurboTax turned out larger refunds than I had calculated.

There was quite a bit of hesitation before I finally hit the “file now” button. I recalled that it was TurboTax that Secretary of Treasury Timothy Geithner had used to file his taxes. That landed him in an embarrassing position before a Senate committee, explaining the mistakes he had made.

It occurred to me that I should just go with my original paper tax filing and then hit the “short now” button on Intuit, Inc. (INTU: Nasdaq), the application software company that owns the TurboTax property.

After recovering from the market rout in February 2009, INTU shares are trading midway between the stock's 52-week high ($32.00) and low ($20.18). The shares are priced at 14.7 times forward earnings, which might be considered a compelling valuation given the 13.6% net income margin and 21.4% return on equity. However, Intuit is only expected to grow 10% this year, which makes even that nominally low forward PE look like a premium valuation.

The problem with taking a long position in INTU shares now is that after April 15th there will be no real catalysts to move the stock. The consensus is for a loss in the seasonal low quarter in July 2009. That year-over-year comparison would not be pretty.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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