Buy, Sell, or Hold Fair Isaac Stock?
Fair Isaac (NYSE:FICO) shares fell by almost 17% in the last week, following a significant regulatory announcement. The decline was sparked when the Federal Housing Finance Agency (FHFA) revealed that Fannie Mae and Freddie Mac will now recognize VantageScore 4.0 along with traditional FICO scores for mortgage underwriting. This breaks FICO's long-held monopoly, as these two government-sponsored entities support approximately half of all U.S. mortgages. This action is perceived as a possible challenge to FICO's market dominance and its forthcoming pricing power in the credit scoring sector.
So, is this actually a long-term danger for FICO stock, or is the market reaction excessive? Although Vantage Score has received approval, it is anticipated that most lenders will keep using FICO scores due to their established trust, data models, and seamless integration with current underwriting frameworks. Mortgage lending is highly sensitive to risk, and lenders are expected to be hesitant about making an immediate change to a newer model. Furthermore, the existing use of tri-merge credit reports – which aggregate information from all three major credit bureaus: Experian, Equifax, and TransUnion – continues to depend on FICO scores. This should aid in maintaining demand for FICO's scoring products. On a separate note, cryptocurrencies have begun to show movement again. See – Will The Rally In XRP Price Continue?
Does the Decline Render FICO Stock Worth Buying?
Based on the amount you pay for each dollar of sales or profit, FICO stock still appears to be pricey when compared to the wider market. Fair Isaac has a price-to-sales (P/S) ratio of 21.8x compared to a figure of 3.1x for the S&P 500. Additionally, it has a price-to-earnings (P/E) ratio of 71x versus the benchmark's 26.9x. Nevertheless, our evaluation of Fair Isaac across key aspects of Growth, Profitability, Financial Stability, and Downturn Resilience indicates that the company shows robust operational performance and financial health, as described below. That said, if you're looking for potential gains with less volatility than individual stocks, the Trefis High Quality portfolio offers an alternative – having surpassed the S&P 500 and achieving returns over 91% since its inception.
Fair Isaac's Revenues have experienced significant growth in recent years, with its top-line expanding at an average rate of 10.3% over the past 3 years compared to an increase of 5.5% for the S&P 500. Moreover, its quarterly revenues surged by 15.2% to $440 million in the latest quarter, rising from $382 million a year prior, contrasted with a 4.8% increase for the S&P 500. Fair Isaac's profitability remains outstanding. Over the last four quarters, Fair Isaac's Net Income was $544 million, yielding a net income margin of 30.7%, significantly surpassing the S&P 500 average of 11.6%. This showcases the operational efficiency and pricing authority of its Scores segment. Fair Isaac's balance sheet appears solid, with the company maintaining a Debt-to-Equity Ratio of 6.3% (compared to 19.4% for the S&P 500). Cash and cash equivalents make up $184 million of the $1.7 billion in Total Assets for Fair Isaac. This results in a robust Cash-to-Assets Ratio of 10.8%. FICO stock has shown a performance that was slightly better than the benchmark S&P 500 index during several recent downturns.
Not particularly pleased with the still high valuation of FICO stock? The Trefis High Quality (HQ) Portfolio, consisting of 30 stocks, has a history of consistently outperforming the S&P 500 over the past 4-year period. Why is that? Collectively, HQ Portfolio stocks have delivered superior returns with lower risk compared to the benchmark index; providing a smoother ride, as seen in HQ Portfolio performance metrics.
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