Jonah Lupton
CEO & CIO of FirstWave Capital, Long-Biased Growth
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 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
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 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
FICO's management may think the stock is undervalued, but it needs to rein in its debt soon. x.comÂ
Fair Isaac looks more reasonable after a price reset but is now a slower compounder, still not a buy. FHFA has opened the door to VantageScore, which will chip away some share and end easy 10-15% annual price hikes, cutting earnings growth to the mid-teens from the twenties. The main concern remains management funding buybacks with debt at record multiples, reducing flexibility. If it slows the leverage, shareholders could still do fine, though more grinding than explosive. x.comÂ
Fair Isaac's selloff looks technically overdone and will probably push the company to double down on buybacks, making it a short-term bounce trade. The longer-term case is less compelling. x.com x.com x.comÂ
Visa's roughly 30x earnings multiple and $750 billion valuation leave less upside than other opportunities, even if it keeps executing; the best case may be another doubling over a few years. Its once-impenetrable moat may look different in five years, while its reputation as a safe compounder is already priced in. This is a relative judgment, not a prediction that Visa cannot keep rising. x.com x.com x.com x.com x.comÂ
Fair Isaac is losing its monopoly status after this morning's announcement, and sector dominance and moat matter more than fundamentals that look sound on paper. x.comÂ
FICO still looks like one of the best opportunities right now, based on estimated EPS growth of 18% a year and a terminal P/E of 25. x.comÂ
Fair Isaac is still overpriced at 19x earnings even after falling 60% this year. Never overpay. x.comÂ
