Intuit's Strong Free Cash Flow and Operating Leverage: A Case for Buying the Dip

In the volatile landscape of 2025, Intuit Inc. (INTU) has emerged as a compelling case for long-term investors seeking undervaluation in the software sector. Despite a recent selloff driven by macroeconomic uncertainty and sector-wide volatility, the company's robust free cash flow (FCF) yield and expanding operating leverage present a compelling argument to "buy the dip." This article dissects how these metrics signal a mispricing opportunity, offering a roadmap for investors to capitalize on Intuit's durable financial strength.

Free Cash Flow Yield: A Discounted Access to Cash Generation

As of August 2025, Intuit's trailing twelve-month (TTM) free cash flow stands at $6.1 billion, translating to a 3.30% FCF yield when divided by its $184.8 billion market capitalization. This yield is significantly higher than the software industry median of 0.69%, placing Intuit in the top 35% of its peers. For context, Adobe (ADBE) and Salesforce (CRM) report FCF yields of 11.26% and 30.22%, respectively, but their valuations reflect premium growth expectations. Intuit's yield, however, is underpinned by a 26.64% five-year CAGR in FCF, demonstrating consistent cash generation even amid economic headwinds.

The current selloff has further amplified this opportunity. While Intuit's FCF yield has historically fluctuated between 1.68% and 5.57%, the current 3.30% is a 20% discount to its 13-year median of 3.16%. This divergence suggests the market is underappreciating Intuit's ability to convert revenue into cash, particularly in its high-margin segments like QuickBooks and TurboTax. For investors, this represents a rare chance to access a cash-generative business at a valuation that historically would be considered a floor, not a ceiling.

Operating Leverage: Scaling Profitability with Minimal Cost Drag

Intuit's operating leverage is a second pillar of its undervaluation case. The company's non-GAAP operating margin of 40.2% in fiscal 2025 reflects a 90-basis-point year-over-year expansion, driven by disciplined cost management and AI-driven automation. This margin is particularly impressive given the company's aggressive investments in mid-market solutions and international expansion. For example, the Global Business Solutions segment achieved a 76% operating margin in 2025, underscoring the scalability of its platform-based model.

The key to Intuit's leverage lies in its fixed-cost structure, which has remained stable despite revenue growth. Total operating expenses in 2025 rose to $2.57 billion, but this increase was offset by a 79.62% gross margin and a 22.29% operating margin, both of which outpace the software industry average. This efficiency is amplified by Intuit's low payout ratio of 33.5%, allowing it to reinvest in innovation while maintaining a strong balance sheet with $4.6 billion in cash and investments.

The company's operating leverage becomes even more compelling during growth phases. For instance, in Q2 2025, a 20% revenue increase translated into a 36% rise in non-GAAP operating income, driven by TurboTax Live and Credit Karma's 47% and 32% revenue growth, respectively. This disproportionate profit growth highlights Intuit's ability to scale with minimal incremental costs—a hallmark of high-quality software businesses.

Why the Selloff Is a Buying Opportunity

The recent selloff has been fueled by broader market jitters over interest rates and AI-driven disruption, but Intuit's fundamentals remain intact. Its 3.30% FCF yield is now 30% higher than its 2024 level of 2.55%, while its operating margin expansion continues unabated. This divergence between valuation and performance suggests the market is overcorrecting for risks that are already priced into the stock.

Moreover, Intuit's $2.8 billion in share repurchases during fiscal 2025 and its $195 billion market cap (as of August 2025) indicate management's confidence in the company's intrinsic value. The stock's recent pullback has created a 15% discount to its 52-week high, offering a margin of safety for long-term investors.

Investment Thesis: Buy the Dip, Not the Noise

For investors with a 3–5 year horizon, Intuit's combination of high FCF yield, expanding operating margins, and disciplined capital allocation makes it a standout in the software sector. The current selloff is a tactical entry point to position for:
1. Dividend and buyback-driven value creation: With $4.6 billion in cash and a 33.5% payout ratio, Intuit has ample room to return capital to shareholders.
2. AI-driven margin expansion: The company's investments in automation and platform integration are poised to further reduce costs and enhance scalability.
3. Structural growth in small business and consumer fintech: QuickBooks and TurboTax remain dominant in their markets, with international expansion and mid-market solutions offering untapped potential.

While the market may continue to overreact to macroeconomic noise, Intuit's financial moat—built on cash flow durability and operating leverage—provides a strong foundation for long-term outperformance. For investors who can look beyond short-term volatility, this dip is a rare opportunity to acquire a high-quality business at a discount.

Final Recommendation: Buy Intuit (INTU) at current levels, with a target price of $195 (25% upside from August 2025 levels) and a stop-loss at $150 to manage downside risk. The company's FCF yield and operating leverage metrics justify a premium valuation over time, making it a core holding for value-oriented portfolios.