Have Investors Priced In Fair Isaac Corporation’s (NYSE:FICO) Growth?

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Fair Isaac Corporation (NYSE:FICO) is considered a high growth stock. However its last closing price of $316.74 left investors wondering whether this growth has already been factored into the share price. Let’s take a look at some key metrics to determine whether there’s any value here for current and potential future investors.

Check out our latest analysis for Fair Isaac

Can we expect FICO to keep growing?

If you are bullish about Fair Isaac’s growth potential then you are certainly not alone. Expectations from 3 analysts are extremely bullish with earnings per share estimated to rise from today’s level of $5.196 to $8.106 over the next three years. This indicates an estimated earnings growth rate of 15% per year, on average, which indicates an exceedlingly positive future in the near term.

Is FICO available at a good price after accounting for its growth?

Fair Isaac is trading at price-to-earnings (PE) ratio of 60.95x, this also tells us the stock is overvalued based on current earnings compared to the Software industry average of 51.57x , and overvalued compared to the US market average ratio of 18.24x .

NYSE:FICO Price Estimation Relative to Market, July 2nd 2019
NYSE:FICO Price Estimation Relative to Market, July 2nd 2019

We understand FICO seems to be overvalued based on its current earnings, compared to its industry peers. But, to properly examine the value of a high-growth stock such as Fair Isaac, we must reflect its earnings growth into the valuation. I find that the PEG ratio is simple yet effective for this exercise. A PE ratio of 60.95x and expected year-on-year earnings growth of 15% give Fair Isaac a quite high PEG ratio of 4.02x. This means that, when we account for Fair Isaac’s growth, the stock can be viewed as overvalued , based on the fundamentals.

What this means for you:

FICO’s current overvaluation could signal a potential selling opportunity to reduce your exposure to the stock, or it you’re a potential investor, now may not be the right time to buy. However, basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PEG ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:

  1. Financial Health: Are FICO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has FICO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of FICO’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.