As of the latest trading session, Fair Isaac Corp (FICO, Financial) has experienced a daily gain of 2.74%, contrasting with a slight three-month decline of 0.47%. With an Earnings Per Share (EPS) of 19.05, the question arises: is the stock significantly overvalued? This article delves into the valuation of Fair Isaac, encouraging readers to explore the detailed financial analysis that follows.
Understanding Fair Isaac Corp (FICO, Financial)
Founded in 1956, Fair Isaac Corporation operates as a leading applied analytics company. Known primarily for its FICO credit scores, Fair Isaac plays a crucial role in the financial sector by providing creditworthiness assessments through its scores. The company's operations extend beyond credit scoring to include software solutions for analytics, decision-making, customer workflows, and fraud prevention, primarily targeting financial institutions. At a current price of $1322.01 per share and a market cap of $32.70 billion, a comparison with the GF Value suggests a significant overvaluation, setting the stage for a deeper exploration of Fair Isaac's intrinsic value.
Decoding the GF Value
The GF Value is a proprietary measure estimating the fair value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Fair Isaac, the GF Value is set at $741.53, indicating that the stock is significantly overvalued. This valuation suggests that Fair Isaac's stock price, which significantly exceeds this intrinsic value estimate, may offer poorer future returns compared to more accurately valued counterparts.
Financial Strength and Stability
Investors must consider a company's financial strength before investing. Fair Isaac's cash-to-debt ratio of 0.07 ranks lower than 93.82% of its peers in the software industry, reflecting potential risks in its balance sheet. GuruFocus rates its financial strength as 5 out of 10, indicating a fair status but necessitating cautious investor consideration.
Profitability and Growth Prospects
Fair Isaac has demonstrated strong profitability, with an operating margin of 42.94%, placing it better than 98.48% of companies in the software industry. The company has maintained profitability over the past decade, with notable revenue growth of 11.3% annually, outperforming 56.98% of its industry peers. The 3-year average EBITDA growth rate of 33.5% further underscores its growth potential.
Comparative Analysis of ROIC and WACC
Evaluating Fair Isaac's value creation, its Return on Invested Capital (ROIC) is 39.6, significantly surpassing its Weighted Average Cost of Capital (WACC) of 12.06. This indicates efficient management and effective use of capital, reflecting positively on its investment appeal despite its high valuation.
Conclusion
While Fair Isaac (FICO, Financial) appears significantly overvalued based on current metrics, its strong financial health, profitability, and growth prospects provide a complex but intriguing picture. Investors should weigh these factors carefully against the high market valuation. For a deeper dive into Fair Isaac's financial health and performance metrics, consider exploring 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.
