- If you are wondering whether Fair Isaac's premium share price still lines up with its underlying value, or if expectations have run ahead of the fundamentals, this article walks through the numbers in a clear, practical way.
- The stock last closed at US$1,463.17, with returns of a 5.3% decline over 7 days, a 13.5% decline over 30 days, an 11.0% decline year to date and a 21.9% decline over 1 year, set against very large gains over 3 and 5 years of 114.8% and 206.2% respectively.
- Recent coverage has focused on Fair Isaac's position as a key provider of credit scoring and analytics in the US financial system, with investors paying close attention to how demand for its decisioning software and credit scoring services could influence sentiment. Market commentary has also highlighted how changes in expectations for credit activity and software spending may be feeding into recent share price moves.
- Simply Wall St currently gives Fair Isaac a valuation score of 1 out of 6, suggesting that only one of their valuation checks flags the shares as undervalued. In this article we will look at how different methods such as multiples and cash flow based models assess the stock, and then finish with a way of thinking about valuation that can help you put all of these models into context.
Fair Isaac scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.
Approach 1: Fair Isaac Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today using a required rate of return.
For Fair Isaac, the model used is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month Free Cash Flow is about $751.2 million. Analysts have provided forecasts out to 2030, with Simply Wall St extending the path beyond the explicit analyst window. For example, projected Free Cash Flow for 2030 is $1,952.5 million, with interim annual figures between 2026 and 2035 discounted back to a present value in the model.
Rolling all of these discounted cash flows together gives an estimated intrinsic value of about $1,460.77 per share. Compared with the recent share price of about $1,463.17, the DCF suggests the stock is roughly 0.2% overvalued. This is effectively a tight match between the current market price and the modelled value.
Result: ABOUT RIGHT
Fair Isaac is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.
Approach 2: Fair Isaac Price vs Earnings
For a profitable company like Fair Isaac, the P/E ratio is a straightforward way to connect what you pay for the stock with the earnings it currently generates. It lets you see how many dollars investors are paying for each dollar of earnings.
What counts as a normal P/E depends a lot on what investors expect for future growth and how much risk they see in the business. Higher expected growth or lower perceived risk can support a higher P/E, while lower growth or higher risk usually points to a lower multiple.
Fair Isaac currently trades on a P/E of 52.77x. That is above the broader Software industry average of about 28.82x and above a peer group average of 40.74x. Simply Wall St also calculates a proprietary “Fair Ratio” of 38.40x, which is the P/E they would expect for Fair Isaac given factors like its earnings growth profile, industry, profit margins, market cap and risk characteristics.
This Fair Ratio aims to be more tailored than a simple comparison with peers or the industry because it adjusts for company specific traits instead of assuming one size fits all. Set against the current P/E of 52.77x, the 38.40x Fair Ratio points to the shares trading on a richer multiple than that model suggests.
Result: OVERVALUED
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Upgrade Your Decision Making: Choose your Fair Isaac Narrative
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which let you attach a clear story to your numbers by spelling out your view on a company’s fair value, future revenue, earnings and margins.
A Narrative links three pieces together in a simple chain: the company’s story, the financial forecast that follows from that story, and the fair value that comes from those forecasts. This helps you see exactly how your view turns into a number.
On Simply Wall St, within the Community page used by millions of investors, Narratives are set up to be easy to use. They help you compare Fair Value to the current Price so you can decide whether a stock looks attractive to you or not, and they update automatically when new information like news or earnings is added to the platform.
For Fair Isaac, for instance, one investor might build a Narrative that supports a relatively low fair value based on cautious assumptions for future software demand, while another might arrive at a much higher fair value by expecting stronger adoption of its credit scoring and decisioning tools, even though both investors are looking at the same set of public numbers.
Do you think there's more to the story for Fair Isaac? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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