Q-Cap
Financial Satire & Grift Detection
Fair Isaac looks insanely cheap at its lowest P/E in well over a decade, with fundamentals that still look beautiful. Per @stock_analysisx, the derating follows the US government's move to end FICO's mortgage scoring monopoly, leaving the stock at its lowest P/E since 2013. x.com 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 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 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's moat has narrowed but not disappeared, so the selloff over VantageScore may be an opportunity. FHFA Director Bill Pulte let all Fannie Mae and Freddie Mac lenders use VantageScore 4.0, ending FICO's effective mortgage monopoly, and floated a cheaper bi-merge model. That brings a lower-cost rival and threatens pricing power. But FICO is deeply embedded in lender systems, underwriting, securitizations and decades of data. It works only if valuation leaves a margin of safety. x.comÂ
FICO's management may think the stock is undervalued, but it needs to rein in its debt soon. x.comÂ
FICO, AppLovin, Intuitive Surgical and Palantir are among the most undervalued S&P 500 stocks: each is down 40-60% from its high while EPS keeps rising double digits or more. The declines reflect multiple compression from higher yields, rotation into memory and hardware, and priced-for-perfection expectations. FICO's platform ARR rose 62%, AppLovin runs an 84% EBITDA margin, Intuitive's revenue is 85% recurring and Palantir's revenue rose 93%. Risks include Palantir's 40x forward sales. x.com … Show more
FICO's pricing power should hold because lenders have hated its pricing forever and none of them ever actually leave, which makes Steve Eisman's short a brave bet. Eisman says FICO raised prices over 500% and angered everyone in lending. Switching costs are the moat, and if they actually crack, the stock would fall fast rather than slowly. x.com 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
Mastercard, AutoZone, Booking, Apple, Caterpillar, ADP and Fair Isaac are buyback machines, among the best stocks to own, because each has consistently reduced its share count. That raises each shareholder's ownership stake every quarter without lifting a finger. x.com x.com x.com x.com x.com x.com x.comÂ