FICO Stock - Will it Rebound Back to $2,400?

Good day fellow investors. So many comments about FICO. What's going on there? The stock is down 60% but earnings are still growing 40%. So let's see whether there is value or still more risk. Just the day before I was preparing this 16 17% down on Fenny May Freddy Mac using another score provider. Let's look a little bit at the numbers from the last presentation. Everything looks staggeringly good. Revenues up 26%. Scores revenues 41%. Software stable but still 66% platform growth. Net income 40% up earnings per share. Staggering numbers. Free cash flow up. Huge share repurchases that take advantage of the lower stock price. booming revenue growth, especially in the scores as they are increasing the pricing of those data points for mortgage issuing companies. And you can see here the booming revenues over the last years and especially now as they are increasing prices and that really leverages earnings that are up much more than revenues. What's going on? Well, massive price hikes since 2020. The company increased their prices by 1,800% per score, which is crazy. And then also now they doubled their list prices for 2026, pushing per score costs from four to over 10. There comes the revenue growth and the profit growth. But if they pushed it plus 50%, the revenue is plus 30%. So there is some market share loss or less mortgage origination. That is something to think about when you push prices like this. There are others vantage scores that come in priced under a dollar that take your market. Nevertheless, people are still using it. Go it as a safety provider there as good data and therefore everything is improving. Margins are improving. free cash flows are improving almost reaching a billion per retraing year. However, on the share price, they are going into levered buybacks, which is a very very gutsy move from any management because you go borrow money, you go into buybacks thinking that the stock is undervalued, which means if you're wrong, you get the debt forever and you also destroy value if the stock goes lower, which has happened last Friday. So huge conviction by the management. However, the debt ratios are higher and the buybacks have worked but also one might say haven't. If the company keeps on growing and doing well forever then the buybacks are good. However, if there is a risk then the buybacks are not good. And here comes perhaps the key description of this situation which is a bet. The management is betting by using that to do buybacks by aggressively increasing prices, pushing higher and higher prices on customers without thinking about the competition. I feel like there is a rush on doing things as soon as possible so that the operating income grows 30 40%. Also the balance sheet is getting levered liabilities also booming that then goes into buybacks. But the management here says they are proud of their buybacks. Perhaps now with the stock even lower they will go back to buybacks. But now they will be using cash to pay down the debt they used to do the buybacks. Maybe they will change again their mind. We will see. Anyway, if I look a little bit at analyst estimates, they are still looking for 43% growth, then 20% growth over time. If that happens, the forward P ratio goes to 20 and then to even 14 by September 2028. PE ratio 14. That is why most Wall Street analysts have it as a buy. And you can see the targets are in the high,000,000,500 to 2,000. But there is also one analyst that has a low of 700. And if we look at what happened first when you look at the stock price down yes now it is at a P ratio of 27 which is relatively cheap compared to the stock's history but then not even that cheap compared to some uglier times in its history. But when you are buying something at 120 times earnings, those earnings better grow fast and a lot. So the stock price decline can be first explained by the crazy valuation at first and now by a more relative valuation. The bet there remains that valuations will let's say stay where those are and earnings will grow at a P ratio 30. If earnings go up 50%, you make your own 50% over the next two years. However, if the management has been too aggressive in pricing, too aggressive in buybacks, if the competition is really capable of delivering for lower prices, perhaps not everyone will switch, but some. And when you start losing market share there is a risk that slowly something else comes in especially now with AI data collection everything faster it is possible. So that is a permanent capital loss risk which we as value investors don't engage with. So when I compare it to the quadrant what we have discussed up till now what we are following when it comes to investing I prefer let's say the businesses you can own with a little bit more safety you have also a few on my research platform would I put it in the bets segment of the quadrant that's too much of a bet there is no margin of safety if things go wrong and when it comes to FICO 112p ratio. This for me is just an explanation of this market. Prediction markets are booming. The stock market especially since the pandemic has been used and seen as a gambling casino where one can make a lot of money fast from cryptos from chips from AI and now we are in the betting side of things. Yes, FICO if you look at it, it is relatively cheap. Maybe it will get to 60 earnings per share. Then it would be okay. That's the P ratio of 15. But even if it hits 60 and then grows slowly at 2.4,000 that people paid, it takes you 40 years to get your money back through earnings. So now the company has a structural risk. We'll see how it evolves, but some people are getting mad about it and the stock has been punished. Will it be revalued? That's just a bet that nobody can answer now. And my key message is only the future will tell us is not an investment strategy to base your wealth on. If you like prediction markets, even interactive brokers that we discuss has prediction markets. Now, if you want to click on the link in description below, you can support the channel. Thanks for watching. Check the quadrant. Check what I do. and I'll see you in the next video.