Today's spotlight is on Fair Isaac Corp (FICO, Financial), a leading applied analytics company, best known for its FICO credit scores. Despite a daily gain of 2.74% and a 3-month gain of 7.75%, the question remains: is Fair Isaac's stock significantly overvalued? With an Earnings Per Share (EPS) of 16.47, we delve into a comprehensive analysis of Fair Isaac's valuation.
Company Snapshot
Founded in 1956, Fair Isaac Corp is a titan in the analytics industry. The company's FICO credit scores serve as an industry benchmark to determine consumer creditworthiness, accounting for most of the firm's profits. Fair Isaac also offers software, primarily to financial institutions, for analytics, decision-making, customer workflows, and fraud detection. With a stock price of $910.86 and a GF Value of $649.09, Fair Isaac is significantly overvalued according to our analysis.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is derived from historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on our valuation method, Fair Isaac's stock appears significantly overvalued. The stock's fair value is estimated considering historical multiples, an internal adjustment based on past business growth, and analyst estimates of future business performance. At its current price of $910.86 per share, Fair Isaac has a market cap of $22.60 billion, indicating significant overvaluation.
As such, the long-term return of Fair Isaac's stock is likely to be much lower than its future business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Thus, it is crucial to review a company's financial strength before deciding to buy its stock. Fair Isaac has a cash-to-debt ratio of 0.08, which is worse than 93.33% of 2729 companies in the Software industry. GuruFocus ranks the overall financial strength of Fair Isaac at 4 out of 10, indicating poor financial strength.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. Fair Isaac has been profitable over the past 10 years, with an operating margin of 41.38%, ranking better than 98.08% of 2760 companies in the Software industry. GuruFocus ranks Fair Isaac's profitability at 10 out of 10, indicating strong profitability.
Growth is one of the most important factors in a company's valuation. Fair Isaac's 3-year average revenue growth rate is better than 56.64% of 2394 companies in the Software industry. Fair Isaac's 3-year average EBITDA growth rate is 30.9%, which ranks better than 78.42% of 1988 companies in the Software industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to evaluate its profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Fair Isaac's ROIC was 37.35, while its WACC came in at 11.87.
Conclusion
In conclusion, Fair Isaac's stock appears significantly overvalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 78.42% of 1988 companies in the Software industry. To learn more about Fair Isaac's stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
