Here's Why We Think Fair Isaac (NYSE:FICO) Is Well Worth Watching

By
Simply Wall St
Published
January 20, 2022
NYSE:FICO
Source: Shutterstock

It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Fair Isaac (NYSE:FICO). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. In comparison, loss making companies act like a sponge for capital - but unlike such a sponge they do not always produce something when squeezed.

View our latest analysis for Fair Isaac

Fair Isaac's Earnings Per Share Are Growing.

The market is a voting machine in the short term, but a weighing machine in the long term, so share price follows earnings per share (EPS) eventually. That makes EPS growth an attractive quality for any company. Who among us would not applaud Fair Isaac's stratospheric annual EPS growth of 50%, compound, over the last three years? That sort of growth never lasts long, but like a shooting star it is well worth watching when it happens.

I like to see top-line growth as an indication that growth is sustainable, and I look for a high earnings before interest and taxation (EBIT) margin to point to a competitive moat (though some companies with low margins also have moats). This approach makes Fair Isaac look pretty good, on balance; although revenue is flattish, EBIT margins improved from 26% to 31% in the last year. That's a real positive.

In the chart below, you can see how the company has grown earnings, and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NYSE:FICO Earnings and Revenue History January 20th 2022

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Fair Isaac EPS 100% free.

Are Fair Isaac Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$12b company like Fair Isaac. But we are reassured by the fact they have invested in the company. Indeed, they have a glittering mountain of wealth invested in it, currently valued at US$302m. This suggests to me that leadership will be very mindful of shareholders' interests when making decisions!

Should You Add Fair Isaac To Your Watchlist?

Fair Isaac's earnings per share have taken off like a rocket aimed right at the moon. That EPS growth certainly has my attention, and the large insider ownership only serves to further stoke my interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So to my mind Fair Isaac is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. What about risks? Every company has them, and we've spotted 3 warning signs for Fair Isaac you should know about.

Although Fair Isaac certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Discounted cash flow calculation for every stock

Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any company just search here. It’s FREE.

Make Confident Investment Decisions

Simply Wall St's Editorial Team provides unbiased, factual reporting on global stocks using in-depth fundamental analysis.
Find out more about our editorial guidelines and team.