We came across a bullish thesis on Fair Isaac Corporation (FICO) on Substack by Quality Equities. In this article, we will summarize the bulls’ thesis on FICO. Fair Isaac Corporation (FICO)’s share was trading at $1900.54 as of Jan 17th. FICO’s trailing and forward P/E were 92.94 and 62.50 respectively according to Yahoo Finance.
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Fair Isaac (FICO) is an analytics and software company known for its dominance in the credit scoring industry. FICO’s credit scoring models are widely adopted by financial institutions to evaluate consumer credit risk, positioning the company as a virtual monopoly in this space. This gives FICO substantial pricing power and a competitive edge, which, combined with its capital-light, high-margin business model, allows the company to generate predictable, recurring revenue and deliver strong financial performance.
FICO’s business model is centered around its proprietary analytics, mathematical models, and scalable software solutions. The company serves various industries, offering risk management, fraud detection, operational optimization, and consulting services. This approach enables FICO to maintain a resilient business with steady earnings growth. Notably, FICO has earned high praise from industry experts, with Dev Kantesaria of Valley Forge Capital Management calling it “one of the highest-quality business models on the planet.”
Despite its impressive fundamentals, FICO’s current valuation raises some concerns. At present levels, the company is trading at a modest 1.26% free cash flow yield, indicating high market expectations. A reverse discounted cash flow (DCF) analysis reveals that the market is pricing in an ambitious 10-year free cash flow compound annual growth rate (CAGR) of 26.85%, which appears overly optimistic. Given this lofty growth assumption and the current valuation, the stock may be priced beyond its intrinsic value.
For investors, the high-quality nature of FICO’s business is clear, but patience and discipline are key. The current market price reflects elevated expectations, and it may be wise to wait for a more attractive entry point before investing in FICO shares.
Fair Isaac Corporation (FICO) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held FICO at the end of the third quarter which was 42 in the previous quarter. While we acknowledge the risk and potential of FICO as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FICO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.