LongGameEquity
Long-Term Investor, AI & Software
Fair Isaac is among the stocks worth owning. 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 is still overpriced at 19x earnings even after falling 60% this year. Never overpay. 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
FICO's data moat should widen against VantageScore as it leverages AI, making it an easy decision. Fair Isaac holds about 130 AI patents, per its earnings report. @VJNCapital argues the thesis rests on pricing: a few dollars for a score matter little against a $300k-$500k mortgage, and what counts is how accurately each model predicts default risk; decades of model iterations should be hard to compete against. 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
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
Fair Isaac, S&P Global, Moody's and MSCI are among the best businesses on the planet, amazing to hold for the long term and to beat the market. x.comÂ
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
These five stocks should deliver great returns over the next five years because each trades well below its 10-year median P/E. S&P Global is at 26 times versus a 32 median, Fair Isaac at 39 versus 47, Mastercard at 29 versus 38, Microsoft at 25 versus 33 and ServiceNow at 59 versus 149. x.comÂ