Today, Fair Isaac Corp (FICO, Financial) experienced a slight downturn, with its stock price decreasing by 3.75%. Despite this daily loss, the stock has gained 11.24% over the past three months. A key financial metric, the Earnings Per Share (EPS), stands at 19.05. Given these figures, a crucial question arises: is Fair Isaac significantly overvalued? This article delves into the company's valuation to provide a clearer picture.
Company Overview
Founded in 1956, Fair Isaac Corporation has established itself as a leader in applied analytics. The company is renowned for its FICO credit scores, a critical benchmark in assessing consumer creditworthiness. Fair Isaac's operations primarily revolve around providing business-to-business and consumer services, which form the core of its revenue streams. Additionally, it offers a range of software solutions to financial institutions, focusing on analytics, decision-making, customer workflows, and fraud prevention. Currently, with a market cap of $34.40 billion and a stock price of $1392.08, Fair Isaac appears to stand strong in the market. However, its GF Value suggests a different story.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true intrinsic value of a stock, calculated by GuruFocus. This metric is derived from historical trading multiples, an adjustment factor based on past performance, and projected future business performance. According to our analysis, Fair Isaac's GF Value is pegged at $750.77, suggesting that the current stock price is significantly higher than its fair value. This discrepancy indicates that the stock might be overvalued, potentially leading to poorer future returns compared to its business growth.
Financial Strength and Stability
Before investing, assessing a company's financial strength is crucial. Fair Isaac's cash-to-debt ratio stands at 0.07, which is lower than 93.82% of its peers in the software industry. This metric, along with a financial strength rating of 5 out of 10, suggests that Fair Isaac has a fair level of financial health, although it could be prone to risks associated with high debt levels.
Profitability and Growth Prospects
Fair Isaac has demonstrated strong profitability, with an operating margin of 42.94%, ranking better than 98.52% of its industry counterparts. The company's profitability score is 9 out of 10, underscoring its efficiency in generating profits. In terms of growth, Fair Isaac has seen an average annual revenue increase of 11.3%, with a three-year average EBITDA growth rate of 33.5%. These figures illustrate a robust growth trajectory, surpassing many competitors in the software industry.
ROIC vs. WACC: A Critical Comparison
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is vital for understanding value creation. Fair Isaac's ROIC is an impressive 39.6, significantly higher than its WACC of 12.09. This indicates that the company is effectively generating value for its shareholders, outpacing the costs of its capital.
Conclusion
In summary, while Fair Isaac (FICO, Financial) showcases strong financial health, profitability, and growth, its current market valuation significantly exceeds the GF Value, suggesting it is overvalued. Potential investors should consider this analysis carefully and monitor the stock for any adjustments towards its intrinsic value. For a deeper understanding of Fair Isaac's financial health and performance metrics, interested parties can explore 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.
