Oguz Erkan
Investor, Founder of Capitalist Letters
FICO's moat is starting to get disrupted, and the premium multiple holders once defended has not held up. Two years ago the stock traded at 80x EPS on the argument that a high-quality compounder with a moat deserved it; that multiple has since compressed by about 80%. FICO would need to rise 280% to regain its all-time high, and there is a good chance it never does. x.com x.com x.comÂ
Fair Isaac's scoring moat is eroding after the FHFA said Fannie Mae and Freddie Mac will move to a unified mortgage pricing grid that places VantageScore alongside Classic FICO. VantageScore borrowers will reach the top pricing tier at 780+, the same threshold as FICO, eliminating their previous 20-point disadvantage. As @oguzerkan notes, even after a 60% drop this year the stock still trades at 19x earnings, a reminder never to overpay for quality. x.com x.com x.com x.comÂ
Fair Isaac's risk/reward is starting to look enticing at current levels. If it reaches about $75 of EPS by 2029 and trades at 20x earnings, that implies a stock price of about $1,500. x.comÂ
Fair Isaac still looks far too expensive at 90x free cash flow, even after a 75% fall in a monopoly. Even if FCF doubled, the price would equal 45 years of cash flow, and doubling at FICO's size is much less plausible after it raised prices 17 times and angered customers. The test is whether the company can earn the price paid within an investor's lifetime under generous growth assumptions. x.com x.com x.com x.comÂ
Fair Isaac at 40x GAAP earnings and 30x EBITDA is no value stock. Much of the gap between GAAP and adjusted earnings is stock-based compensation, $160 million over the past 12 months against net income of $658 million last year, a chunky share of profits even though buybacks exceed issuance. If FICO counts as consensus value, it is time to retire the idea of value investing. x.com x.com x.com x.comÂ
Fair Isaac is among the stocks worth owning. x.comÂ
FICO no longer merits ownership because its business model, once arguably the best in the world, has made too many enemies and may have gotten too greedy with pricing. x.comÂ
FICO's management may think the stock is undervalued, but it needs to rein in its debt soon. x.comÂ
FICO is trading at its lowest valuation of the decade, about 13x forward earnings for what is essentially a duopoly, which is attractive. @thejmkane counters that it is no longer really a monopoly, but a duopoly at 13x is not so bad. x.com x.comÂ
Fair Isaac's moat has shrunk to a puddle after one pricing-grid change. Per @wallstengine, FHFA said Fannie Mae and Freddie Mac will move to one mortgage pricing grid that puts VantageScore alongside Classic FICO, with VantageScore borrowers reaching the top band at 780+, the same as FICO, giving lenders a cheaper alternative on the same framework. The shares fell 18%. x.comÂ