Fair Isaac Corporation (NYSE:FICO) saw a significant share price rise of 31% in the past couple of months on the NYSE. The recent share price gains has brought the company back closer to its yearly peak. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company's outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let's examine Fair Isaac's valuation and outlook in more detail to determine if there's still a bargain opportunity.
What's The Opportunity In Fair Isaac?
According to our valuation model, the stock is currently overvalued by about 35%, trading at US$1,688 compared to our intrinsic value of $1250.45. This means that the buying opportunity has probably disappeared for now. But, is there another opportunity to buy low in the future? Given that Fair Isaac's share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Fair Isaac generate?
Future outlook is an important aspect when you're looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it's the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Fair Isaac's earnings over the next few years are expected to increase by 82%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in FICO's positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe FICO should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping an eye on FICO for a while, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there's no upside from mispricing. However, the positive outlook is encouraging for FICO, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Fair Isaac at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Fair Isaac.
If you are no longer interested in Fair Isaac, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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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.
