As I write this early in Friday's trading, the markets are red, with the S&P 500 down 0.61% and the Dow down 0.82%.
So far, stocks taking it on the chin include Akamai Technologies (AKAM), Block (XYZ), and NU Holdings (NU), all down double digits due to disappointing earnings. Also getting attention is UnitedHealth Group (UNH), which is being investigated by the Department of Justice for Medicare billing practices. It’s down more than 8%.
Unless investors get in a buying mood in the next few hours, the major indexes will all finish lower for the week.
Last night’s hockey game was a good one. As a Canadian, I’m pleased with the outcome, especially when the world’s greatest hockey player (Connor McDavid) scores the winner in overtime. Nice. But I digress.
For today’s commentary, the Intuit Jan. 16/2026 $700 call caught my attention. It had the third-highest Vol/OI ratio amongst the 715 calls, with ratios of 1.24 or higher and expiring in a week or longer.
On the surface, it seems like a sensible bet on a good business. However, like every option and stock trade, someone on the other side disagrees.
So, the question is, is the $700 call a sucker’s bet? Or am I just reading into something that’s not there? I’ll consider both arguments.
Have an excellent weekend.
Intuit Has a Great Business
Before I explain why I like Intuit’s business, it’s important to note that analysts generally like its stock. Of the 29 analysts who cover it, 22 rate it a Buy (4.41 out of 5). Their target price is $734.62, which is 27% higher than where it currently trades.
That’s crucial. I’ll get into why in a bit. Meanwhile, let’s consider the strong points of Intuit’s business.
The software company reported its Q1 2025 results in November. It is expected to report its Q2 2025 results next week, on Feb. 25. In the first quarter, its sales grew 10% year over year to $3.3 billion.
Of its four reportable segments, its Global Business Solutions, which primarily includes its QuickBooks and MailChimp platforms, generated $2.5 billion in revenue, up 9% from Q1 2024. The next highest revenue generator was Credit Karma, which generated $524 million, up 29% from Q1 2024. The company's Consumer business (TurboTax) generated $176 million in revenue, 6% down from a year ago. Its tiny ProTax segment saw revenues decline by 7% to $39 million.
One can make a basic observation about the current state of the situation.
QuickBooks and MailChimp drive Intuit’s business. Without it, there is no $161 billion market cap. Revenues in the first quarter accounted for 77.5% overall, while the segment’s operating profits were $2.0 billion, 87.9% overall.
If Intuit were to dump the rest of its businesses, it wouldn’t miss a beat. That’s especially true given that it has continued transitioning from desktop-based product offerings to online ones. In Q1 2025, its online ecosystem, primarily QuickBooks and MailChimp, was $1.94 billion, 20.1% higher than a year ago. It accounted for 59.2% of overall revenue, 490 basis points higher than in Q1 2024.
Expanding the number of small and mid-market businesses that utilize its online ecosystem, it will grow its ARPC (average revenue per customer), which in turn will lead to higher profit margins.
As Intuit has grown, operating margins have fallen. At the end of fiscal 2020 (July year-end), they were 28.7%. Five years later, in 2024, they were 500 basis points lower. However, over those five years, revenues grew by 112%.
Suppose it keeps increasing the percentage of revenue generated from its online ecosystem into the high 60s or even 70s. In that case, the operating margins will return to where they were in 2020, only on a considerably more extensive business base.
Therefore, it doesn’t need to boost annual revenue considerably to deliver profitable growth.
Intuit is focused on five big bets to grow its business. All of them seem to have some AI component. It’s almost like they’ve adopted a 2.0 version of “high tech, high touch” to move the needle.
I don’t see why it can’t work. In my opinion, the $700 call expiring in 330 days is not a sucker’s bet. Here’s why.
Remember the Analyst’s Target Price
I said I’d get back to Wall Street’s target price for Intuit, and here we are.
The 12-month target price is $734.62, $34.62 higher than the $700 strike price on the Jan. 16/2026 $700 call. The 330-day DTE is basically one month shy of a year. The gain required over the next year to hit the target is $155.54, or 27% from yesterday’s closing price of $579,08.
The $155.54 gain over 12 months averages $12.96 per month. Subtract that from the $734.62 target, and you get an 11-month target of $721.66, 31% higher than the strike price, so more than achievable by next January.
However, you must also factor in the $33.40 ask price, which is 5.8% of the current share price. That means that INTU shares have to appreciate by $11.74 [$700 strike price + $33.40 ask price - $721.66 11-month target] more than the 11-month target for you to consider exercising your right to buy 100 shares early next year.
That’s not even a 2% additional appreciation to meet the target.
More importantly, the 0.34078 delta means you can double your money by selling the call before expiration if it appreciates by $98.01 (17%) over the next 11 months.
It’s not as easy as it looks. In the past five years, Intuit stock has been at or above $700 twice: November 2021 and November 2024. On both occasions, it cratered shortly after.
The ITM (in the money) probability for the $700 call is 24.68%, a one-in-four chance. Despite the low odds, on two occasions in the past year, its shares have appreciated by 15-20% over a short timeframe, only to lose momentum and fall back, like the two $700 corrections.
If you’re an aggressive investor who is bullish about Intuit’s future, the risk/reward is reasonable. If you’re not risk-tolerant, this probably isn’t for you, even if you like Intuit’s business.
