Should You Rethink FICO Shares After a 25% Rally and Strong Forecasts?

Thinking about what to do with Fair Isaac stock right now? You are not alone. This company is no stranger to dramatic market moves, and recent weeks have shown just how quickly sentiment can turn. In the past week alone, Fair Isaac’s share price climbed an eye-catching 25.6%, capping off a 22.7% gain for the last month. That’s especially striking given the stock is still down a bit for the year, but much higher over the last few years, with an increase of 363.3% over three years and 327.0% over five. These swings raise classic investor questions: is the market waking up to new growth potential, or is the mood simply shifting on perceived risk?

Despite these price jumps, valuation remains a sticking point. By our numeric valuation score, where a higher score signals more checks for undervaluation, Fair Isaac currently racks up a score of just 0 out of 6. That means, based on the traditional valuation metrics we will dig into next, the company does not come up as undervalued on any front.

Of course, numbers tell part of the story. Traditional methods help, but as we explore Fair Isaac’s value from several familiar angles, keep in mind that there is an even more insightful way to cut through the noise, one you will not want to miss at the end of this article.

Fair Isaac scores just 0/6 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

The Discounted Cash Flow (DCF) model estimates a company’s intrinsic value by projecting its future free cash flows and discounting them back to today’s terms. This approach helps investors understand what Fair Isaac might be worth based solely on its future cash generation potential, expressed in current dollars.

Currently, Fair Isaac’s Free Cash Flow (FCF) stands at $772.2 Million. Analysts have provided growth estimates out to 2029, where FCF is projected to reach $1.62 Billion. Beyond that, cash flow forecasts are extrapolated to cover the next decade. All cash flows are measured in US dollars, offering a clear look at the company’s ability to generate cash over time.

According to the DCF model, Fair Isaac’s intrinsic value is estimated at $1,364 per share. However, the implied discount shows that the stock is trading at a 37.8% premium compared to its calculated intrinsic value. In other words, even though cash flows are expected to grow, current market enthusiasm puts the share price significantly above what this rigorous analysis suggests it is worth.

Result: OVERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Fair Isaac.

Our Discounted Cash Flow (DCF) analysis suggests Fair Isaac may be overvalued by 37.8%. Find undervalued stocks or create your own screener to find better value opportunities.

Approach 2: Fair Isaac Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation measure for profitable companies like Fair Isaac, as it relates the market value of a stock to its earnings. For companies with consistent profits, the PE ratio offers a straightforward way to gauge how much investors are willing to pay for each dollar of earnings, which makes it especially useful for comparison with peers and industry standards.

However, the “right” PE ratio depends on several factors, such as expected growth rates and perception of business risk. Companies with strong growth prospects or lower perceived risk often trade with higher PE ratios, while those facing challenges or uncertainties might warrant lower ones.

Fair Isaac currently trades at a lofty 71.3x PE ratio. This stands well above the software industry average of 35.6x and also higher than its peer average of 63.5x. On the surface, this suggests the market is extremely optimistic about the company’s future. However, to cut through the noise, it is not enough to compare only with static benchmarks.

This is where the Simply Wall St "Fair Ratio" comes in. The Fair Ratio for Fair Isaac is 41.7x, calculated by weighing a broad range of factors like earnings growth expectations, profit margins, inherent risks, market capitalization, and how the company stacks up within its industry. Unlike traditional comparisons, the Fair Ratio adapts to the company's unique profile rather than applying a one-size-fits-all judgment from the sector or nearest neighbors.

Comparing Fair Isaac’s actual PE of 71.3x to its Fair Ratio of 41.7x points to a significant premium. The valuation is well above what would be expected given its growth and risk profile. This indicates the stock is currently overvalued by this approach.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

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. Narratives are a simple but powerful tool that lets you define your own investment story for Fair Isaac, connecting what you believe about the company’s future, its revenues, margins, and fair value, to real numbers and forecasts.

Think of a Narrative as your personalized investment thesis: it captures your expectations, links them to financial projections, and instantly shows you the fair value that matches your outlook. On Simply Wall St's Community page, millions of investors are already using Narratives to create, share, and compare perspectives on companies, making complex decisions much more accessible and transparent.

Narratives help you decide when to buy or sell by showing you how your calculated fair value compares to the current share price. Your Narrative will update automatically when new information such as earnings releases or news becomes available.

For example, with Fair Isaac, one investor might see cloud partnerships and data-driven products as huge growth drivers and set a higher fair value. Another could focus on regulatory risks and assign a much lower value; both views quickly translate into actionable, side-by-side numbers so you can decide what matters most to you, all in one place.

Do you think there's more to the story for Fair Isaac? Create your own Narrative to let the Community know!

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com