With a daily gain of 2.37% and a three-month gain of 12.95%, Fair Isaac Corp (FICO, Financial) has shown notable market performance. However, the critical question remains: Is the stock significantly overvalued? With an Earnings Per Share (EPS) of 16.47, investors are keen to understand the true value of FICO shares. This article delves into the valuation analysis of Fair Isaac, aiming to provide a clear answer to this pressing question and encouraging readers to explore the comprehensive analysis that follows.
Company Introduction
Founded in 1956, Fair Isaac Corporation has established itself as a leading applied analytics company. Best known for its FICO credit scores, Fair Isaac's business model is centered around providing industry-standard benchmarks for consumer creditworthiness. The company's offerings span from business-to-business to business-to-consumer solutions, with a strong emphasis on software for financial institutions in areas such as analytics, decision-making, customer workflows, and fraud prevention. When comparing Fair Isaac's stock price of $962.7 to the GF Value of $663.09, it becomes evident that a deeper examination of the company's intrinsic value is warranted.
Summarize GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is meticulously calculated considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line, a visual representation on our summary page, indicates the stock's fair trading value. If a stock's price significantly exceeds the GF Value Line, it suggests overvaluation and potentially poor future returns. Conversely, a price well below the line could signal undervaluation and the prospect of higher returns.
According to GuruFocus' valuation methods, Fair Isaac (FICO, Financial) is significantly overvalued. The GF Value estimates Fair Isaac's fair value by integrating historical trading multiples, internal adjustments based on past business growth, and analyst estimates of future performance. At its current price, Fair Isaac stock appears significantly overvalued, which could imply a lower long-term return than its business growth might suggest.
Financial Strength
Investing in companies with robust financial strength mitigates the risk of permanent capital loss. It is crucial to examine a company's financial health, starting with metrics like the cash-to-debt ratio and interest coverage. Fair Isaac's cash-to-debt ratio stands at 0.08, placing it lower than 93.19% of its peers in the Software industry. This positions Fair Isaac's financial strength at a 4 out of 10, suggesting a need for caution.
Profitability and Growth
Investing in profitable companies, particularly those with consistent long-term profitability, is generally less risky. Companies with high profit margins like Fair Isaac, which has been profitable for the past decade, are considered safer investments. With a revenue of $1.50 billion and an operating margin of 41.38%—ranking higher than 98.05% of its industry peers—Fair Isaac's profitability is impressive, earning it a 9 out of 10 profitability rank.
When it comes to growth, Fair Isaac's 3-year average annual revenue growth of 10.9% outperforms 56.48% of companies in the Software industry. Its EBITDA growth rate of 30.9% also stands out, surpassing 78.51% of its industry counterparts, showcasing the company's strong growth trajectory.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its profitability. A higher ROIC than WACC indicates efficient cash flow generation relative to capital investment. Fair Isaac's ROIC is an impressive 37.35, significantly exceeding its WACC of 11.57, indicating a strong return on capital.
Conclusion
In summary, Fair Isaac (FICO, Financial) appears to be significantly overvalued based on its current market price. While the company's financial condition raises some concerns, its profitability and growth prospects remain robust, outpacing a significant portion of the Software industry. To gain a deeper understanding of Fair Isaac's financial health and potential investment value, interested parties are encouraged to review 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.
