Should I Buy FICO (FICO)? Finance YouTuber Analysis

The YouTuber views FICO Corporation as overvalued despite a recent P/E ratio correction to 35, which is its 10-year average. While analysts predict a 70% return, the YouTuber's more conservative P/E assumption of 30 suggests a lower annual return of 24% and a much longer timeframe to reach analyst price targets. They highlight competitive risks from credit bureaus offering alternative scoring models (Vantage Score) and other AI-driven credit assessment companies like Upstart.

“Die für Corporation ist Unternehmen, in das du nur dann investieren wirst, wenn du sagst, dieser Ventage Score von den Herausforderern, von diesen Auskunftteilen, der ist jetzt aus meiner Sicht kein Showstopper.”

The YouTuber suggests FICO is in good value territory with strong fundamentals, citing its standard-setting position in credit scoring and competitive advantage from institutionalization across lending. The company shows top 10 revenue growth and operating margins among software providers, converting nearly half its sales into operating profits, and has improved profitability over the last five years.

“The company is the standard in credit scoring with its FICO model and has a strong competitive advantage in that institutionalization across lending.”

Fair Isaac Corporation (FICO) is highlighted as the most frequent splitter on the list, with a history of multiple splits. The company shows dependable revenue growth and strong earnings growth, justifying its higher valuation and making it a top pick for a likely split.

“Fair Isaac Corporation took her fic with its shares just under $1,400 each is the most frequent Splitter on the list having split its shares in 1995 2001 02 and 2004 The credit scoring and monitoring software company has a Dependable Revenue growth around 133% a year along with strong earnings growth expected up 21% annualized Pace this year and next”

The YouTuber suggests Fair Isaac Corporation will benefit from the high interest rate environment as consumers and businesses pay more attention to credit scores and interest rates. The company is expected to see a 10% jump in revenue this year, indicating continued upside despite its current valuation.

“The provider of the FICO credit score is expected to see Revenue jump 10% this year that's a lot for an older mature financial services company as consumers and businesses just pay more attention to the credit scores and their interest rates.”

The YouTuber believes FICO is significantly overvalued, trading at 63 times free cash flow, which is double its historical average of 32 times. Despite acknowledging its monopolistic position and high margins, he argues that the current valuation is too high, especially when compared to better-valued international opportunities. He would only consider buying if the stock dropped by another 50%.

“So just because the stock is in a slight correction of about 25% does not immediately mean that the business is looking cheap. And I think that well what I've noticed is that there has been this phenomenon that's happened in the US markets especially over the past few years where people are willing to pay extremely high prices for businesses.”

The YouTuber argues that FICO is an exceptional company with a strong moat, and its recent 30% stock drop due to regulatory scrutiny is an overreaction. He believes the impact of potential changes to credit scoring will be less severe than feared, presenting a buying opportunity for a high-quality company.

“If I have to pick a side today, my guess is that FICO will still be an exceptional investment, especially after this 30% tradeown. This doubt gives you an opportunity to enter into a position on an exceptional company when one regulators targeting the company.”

Carlson acknowledges Fair Isaac's strong financial performance, with 15% revenue growth, 25% GAAP income growth, and 45% free cash flow increase year-over-year, and reiterated guidance. However, he states he does not currently own it and is waiting on the sidelines for an entry point, implying it's not a buy at current valuations.

“I have this one as a top consideration on the watch list, and for now, I'm still waiting on the sidelines for an entry point.”

The YouTuber advises caution with FICO, despite its dominant market share, due to its reliance on aggressive price increases that attract regulatory scrutiny and potential harm to consumers. He also notes concerns about its weakened balance sheet from debt-funded buybacks and its limited international presence compared to its domestic monopoly, suggesting these factors make it less suitable for a long-term 'forever' hold.

“FICO has relied on their revenue growth and profit growth primarily on aggressive price increases and this is something that brings a lot of scrutiny.”