Should I Buy FICO (FICO)? Finance YouTuber Analysis

The YouTuber believes FICO is significantly overvalued, trading at 63 times free cash flow, which is double its historical average of 32 times. Despite acknowledging its monopolistic position and high margins, he argues that the current valuation is too high, especially when compared to better-valued international opportunities. He would only consider buying if the stock dropped by another 50%.

“So just because the stock is in a slight correction of about 25% does not immediately mean that the business is looking cheap. And I think that well what I've noticed is that there has been this phenomenon that's happened in the US markets especially over the past few years where people are willing to pay extremely high prices for businesses.” — ▶ 26:00

The YouTuber argues that FICO is an exceptional company with a strong moat, and its recent 30% stock drop due to regulatory scrutiny is an overreaction. He believes the impact of potential changes to credit scoring will be less severe than feared, presenting a buying opportunity for a high-quality company.

“If I have to pick a side today, my guess is that FICO will still be an exceptional investment, especially after this 30% tradeown. This doubt gives you an opportunity to enter into a position on an exceptional company when one regulators targeting the company.” — ▶ 14:50

Carlson acknowledges Fair Isaac's strong financial performance, with 15% revenue growth, 25% GAAP income growth, and 45% free cash flow increase year-over-year, and reiterated guidance. However, he states he does not currently own it and is waiting on the sidelines for an entry point, implying it's not a buy at current valuations.

“I have this one as a top consideration on the watch list, and for now, I'm still waiting on the sidelines for an entry point.” — ▶ Watch clip

The YouTuber advises caution with FICO, despite its dominant market share, due to its reliance on aggressive price increases that attract regulatory scrutiny and potential harm to consumers. He also notes concerns about its weakened balance sheet from debt-funded buybacks and its limited international presence compared to its domestic monopoly, suggesting these factors make it less suitable for a long-term 'forever' hold.

“FICO has relied on their revenue growth and profit growth primarily on aggressive price increases and this is something that brings a lot of scrutiny.” — ▶ 17:00