Fair Isaac: A monopoly with plenty of growth ahead.

Fair Isaac is the company behind the FICO Score, the most widely used measure of consumer credit risk in the United States. Its scores guide lending decisions for mortgages, credit cards, auto loans, and more, making the company deeply embedded in the financial system. Alongside its scoring business, Fair Isaac also provides software that helps banks and lenders make better decisions, detect fraud, and manage risk. With strong profitability, steady innovation, and a growing base of recurring revenue, the company has become a key player in modern credit infrastructure. The question is whether this highly influential business deserves a place in your portfolio.

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me

For full disclosure, I should mention that I do not own any shares in Fair Isaac at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Fair Isaac, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Fair Isaac Corporation, widely known as FICO, is a longstanding leader in analytics and decisioning technology. Founded in 1956, the company has become a core part of the financial infrastructure in the United States, best known for creating the FICO Score in 1989. Fair Isaac operates through two main segments: Scores and Software. The Scores segment revolves around the FICO Score, which has become the standard measure of consumer credit risk. Nearly every major bank, credit card issuer, mortgage lender, and auto lender uses it when evaluating applicants. The score is produced by applying proprietary algorithms to credit data held by Experian, TransUnion, and Equifax. Fair Isaac itself does not collect or store this data, making the model capital-light and highly scalable. Instead, it earns a fee each time a score is generated, collected through the credit bureaus. Because the FICO Score is required for conforming mortgages sold to Freddie Mac and Fannie Mae, it is deeply embedded in the U.S. lending system. The Software segment provides advanced tools for decision management, customer engagement, analytics, and fraud prevention, serving clients in more than eighty countries. These software products are typically sold through multi-year subscription contracts with payments tied to usage, such as the number of accounts or transactions. Most contracts include minimum commitments, making the revenue highly predictable. The value proposition is strong: many customers see a return on investment exceeding one hundred percent within the first year. Over time, more of the company’s offerings are migrating onto FICO Platform, a modular cloud environment that allows organizations to build, update, and scale real-time decisioning workflows. Fair Isaac’s moat is exceptionally strong and rooted in both its scoring dominance and the stickiness of its software. The FICO Score has been the benchmark for decades, and the entire U.S. lending ecosystem is built around it. Lenders, regulators, credit bureaus, and rating agencies rely on the methodology, and their systems are calibrated to FICO’s definitions of creditworthiness. This creates extremely high switching costs. Even after regulators allowed competing scores, lenders have not shifted meaningfully to alternatives such as VantageScore. Fair Isaac estimates that its market share remains above ninety percent across core lending categories, including credit cards, auto loans, personal loans, and the mortgage market. This entrenched position gives the company considerable pricing power, as shown by its ability to raise prices on mortgage-related scoring products without losing adoption. The moat is reinforced by the company’s capital-light structure. Because Fair Isaac does not hold credit data, it avoids significant operational and regulatory burdens while still capturing value from its algorithms. Its model depends on long-standing, difficult-to-replicate partnerships with the three major credit bureaus. Fair Isaac’s software adds another layer of defensibility. The tools are mission-critical for banks, insurers, retailers, telecom providers, and other large enterprises. They automate credit decisions, detect fraud, personalize customer engagement, and optimize risk management. Replacing these systems would be costly, time-consuming, and risky for clients that operate under strict regulatory oversight. As usage grows and more functions move onto FICO Platform, customers become even more embedded in the ecosystem.

Management

Will Lansing serves as the CEO of Fair Isaac, a position he has held since 2012 following six years of service on the company’s Board of Directors. His early involvement at the board level allowed him to shape Fair Isaac’s strategic direction long before assuming operational leadership, giving him a deep understanding of the company’s strengths and long-term opportunities. Under Will Lansing’s tenure, Fair Isaac’s stock price has risen more than twentyfold, reflecting a period of exceptional value creation and disciplined execution. Will Lansing brings a broad and diverse background to Fair Isaac. Before joining the company, he served as the CEO and President of InfoSpace, and he previously held CEO roles at ValueVision Media, NBC Internet, and Fingerhut. Earlier in his career, Will Lansing held senior leadership positions at General Electric, Prodigy, and McKinsey and Company, and he later became a partner at the global private equity firm General Atlantic Partners. This combination of operational leadership, strategic consulting, technology experience, and investment insight gives him a uniquely well-rounded perspective on navigating complex markets and scaling data-driven businesses. Will Lansing demonstrates strong alignment with shareholder interests. He owns approximately 1,7 percent of Fair Isaac’s outstanding shares, nearly four times the level required by his employment agreement. His commitment to shareholder value is further reflected in his steadfast support of stock buybacks, which he views as one of the company’s most effective capital allocation tools. His confidence in Fair Isaac’s intrinsic value has been a recurring theme on earnings calls. Will Lansing has remarked that throughout his thirteen years of fielding investor questions, Fair Isaac’s stock has frequently been at an all-time high, yet he has continued to see buybacks as a compelling use of capital. When addressing the company’s valuation, he noted that even with a price-to-earnings ratio above one hundred, he still believes the stock represents a remarkable value opportunity. Will Lansing holds a Bachelor of Arts from Wesleyan University and a Juris Doctor from Georgetown University. Beyond his leadership at Fair Isaac, he serves on the global board of advisors for Operation Hope and sits on the board of directors for SafeGraph, demonstrating a continued commitment to broader economic and data-focused initiatives. Through his strategic clarity, disciplined financial stewardship, and ability to scale high-value analytics businesses, Will Lansing has guided Fair Isaac through a transformative period of growth. His long-term perspective, deep cross-industry experience, and unwavering confidence in the company’s future position him as a highly capable leader to continue driving Fair Isaac’s evolution as a global leader in decision intelligence.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Fair Isaac has been able to deliver consistently high ROIC because its entire business model is built around intellectual property rather than physical assets. The company does not own credit data, does not run data centers for storing consumer files, and does not need to invest heavily in equipment or infrastructure. Instead, it earns money every time a FICO Score is generated, while the credit bureaus carry the cost of maintaining the underlying data. This makes the Scores business extremely profitable: once the algorithms are developed, each additional score costs almost nothing to produce. The software business works in a similar way. After the initial development, Fair Isaac sells subscriptions that require only modest ongoing investment, so new revenue comes in at very high incremental margins. These two segments together naturally create high ROIC because the company can grow without needing to reinvest much capital. ROIC has reached a new level in the past five years because of two big changes. First, Fair Isaac has significantly increased its pricing power in the Scores segment, especially in the mortgage market. New pricing agreements with the credit bureaus have materially raised the company’s margins, and these higher prices flow almost directly to the bottom line because the cost of producing scores has not changed. Second, more of the software business is now running on FICO Platform, which has higher margins than legacy products and encourages customers to expand usage over time. As platform revenue grows, profitability improves without requiring a larger capital base. The sharp rise over the past two years, including the record-high ROIC in fiscal 2025, is the result of several forces working together. Fair Isaac has been able to raise prices on its scores, score usage has continued to grow, and more customers are adopting its high-margin platform software. At the same time, the company has kept costs tightly controlled. Because Fair Isaac does not need to spend much on new equipment or infrastructure, most of the extra money it earns flows straight through as profit. The company’s large share buybacks also lift ROIC by reducing the amount of capital tied up in the business, which makes the returns look even stronger. The trend is likely to continue because the drivers behind it are structural. The FICO Score remains deeply embedded in the U.S. lending system, and the switching costs for lenders remain extremely high, giving Fair Isaac continued room to raise prices. Meanwhile, FICO Platform is still in its expansion phase, which means software margins should keep improving as more customers adopt it and increase usage. Although ROIC may not rise at the same pace seen in the last two years, the company is well positioned to maintain ROIC at very elevated levels due to its asset-light model, strong pricing power, recurring revenue, and ongoing buybacks.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Fair Isaac’s equity has turned negative over the past five years because the company has been buying back its own shares at an unusually aggressive pace. Share repurchases reduce equity on the balance sheet, and Fair Isaac has spent far more on buybacks than the positive equity it originally had. As a result, equity, which was positive for many years, gradually moved below zero and reached its most negative level in fiscal year 2025. This shift is not a sign of financial problems. It is simply the accounting outcome of a very profitable company returning almost all of its cash to shareholders. Fair Isaac generates strong, steady cash flow and has very low capital needs. Management believes its stock is undervalued and has chosen to reinvest cash into buybacks rather than let it sit idle or use it for acquisitions. Over time, this approach has reduced the amount of equity on the balance sheet even though the underlying business has become stronger and more profitable. Many mature, cash-generating companies with similar business models also operate with negative equity for the same reason. What matters is not the level of equity, but whether the company can comfortably meet its obligations and continue investing in its core products. On those fronts, Fair Isaac remains in a strong position. Looking ahead, equity will likely stay negative and may become even more negative if the company continues buying back shares at the current pace. This is expected and not something to worry about as long as Fair Isaac keeps producing high cash flow and maintains manageable debt levels. In short, the negative equity reflects the company’s confidence in its long-term value, not a weakening financial position.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Fair Isaac consistently produces high free cash flow because its business model requires very little ongoing investment to grow. The company’s core products are algorithms and software, not factories or physical assets. Once the FICO Score and the software solutions are developed, they cost very little to maintain or scale. Each new score generated and each new software subscription brings in extra revenue at very high margins, which means a large portion of sales quickly turns into cash. Over time, the business has become even more efficient. The company has raised prices on its scores, especially in the mortgage market, without increasing its cost base. Its software segment has also shifted more activity onto FICO Platform, which has higher margins than legacy products. These two factors have steadily pushed free cash flow higher. The reason free cash flow and free cash flow margin reached a record high in fiscal year 2025 is that all of these trends came together at once. Fair Isaac benefited from strong pricing increases, stable demand for scores, rising usage of its high-margin platform software, and disciplined spending. Because the company does not need to reinvest much to support growth, almost every additional dollar of revenue in 2025 translated into free cash flow. This strong free cash flow profile is expected to continue. Fair Isaac still has significant pricing power in the Scores segment, and FICO Platform adoption is growing. The company’s capital needs will remain low, and the business is inherently scalable. As long as the FICO Score remains the industry standard and software revenue continues to expand, free cash flow should stay at very high levels relative to revenue. Fair Isaac uses the majority of its free cash flow to repurchase its own shares. Management has made it clear that buybacks are its preferred use of cash because they believe the stock is undervalued and that reducing the share count is the best way to create long-term value. This was evident in the most recent fiscal year, when the company bought back 833.000 shares for a total of 1,41 billion dollars, the highest annual repurchase amount in its history. Leadership has stated that this philosophy has not changed and that buybacks will remain a central part of how Fair Isaac allocates capital. The free cash flow yield indicates that the company is trading at a premium valuation, but I will return to the valuation discussion later in the analysis.

Debt

Another important aspect to evaluate is the level of debt. A manageable debt level is one that can typically be repaid within a three-year period, measured by comparing long-term debt to earnings. In Fair Isaac’s case, the debt-to-earnings ratio is currently 4,17 years, which exceeds the preferred threshold of three years. This higher ratio is largely the result of management’s long-term strategy of using low-cost debt to fund share repurchases. Buybacks are a central pillar of their capital allocation approach, and management has repeatedly stated that they are comfortable with the current leverage profile and do not plan to reduce debt meaningfully in the near term. Their view is that the returns from repurchasing shares far outweigh the cost of borrowing, a belief supported by the company’s strong share price performance and consistent value creation. While I generally prefer lower debt levels, it is reassuring that management has a clear rationale and a proven track record behind this approach. Fair Isaac’s ability to generate substantial free cash flow, maintain high margins, and compound value through disciplined buybacks provides a degree of confidence that the current debt structure is manageable. Even so, this remains an area worth monitoring, especially if earnings growth slows or if leverage rises significantly from here.

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Risks

Macroeconomic factors are a risk for Fair Isaac because the company’s performance is closely tied to the overall health of consumer credit markets and the financial institutions that rely on its products. Fair Isaac earns a fee every time a lender pulls a credit score, which means its Scores segment is directly linked to loan activity across mortgages, credit cards, auto loans, and personal loans. When the economy is strong, borrowing typically grows and lenders run more credit checks, creating a natural tailwind for Fair Isaac. But when economic conditions weaken, credit activity slows, and Fair Isaac’s score volumes can stagnate or decline. This dynamic becomes especially important during periods of high interest rates, inflation, or recession risk. Over the past few years, elevated mortgage rates have sharply reduced home purchases and refinancing activity. Mortgage originations fell far below the record levels seen in 2020 and 2021, creating a “muted” lending environment. Fair Isaac still managed to grow by raising prices and expanding the use of its scores, but score volume itself did not benefit from the kind of natural growth that comes from a healthy housing market. If high interest rates persist or if a recession causes banks to tighten lending standards, Fair Isaac’s B2B scoring revenue could face headwinds. The company is also heavily dependent on the financial sector. This concentration makes Fair Isaac sensitive to broad financial instability. Events such as inflation spikes, interest rate volatility, geopolitical tensions, or banking stress can cause lenders to pull back on new credit issuance or reduce technology spending. If banks face financial pressure or if the industry consolidates further, Fair Isaac could lose customers or see fewer active contracts. Mergers among large banks, for example, reduce the number of institutions that license Fair Isaac’s software and scoring tools. The company has been able to counter slow growth in the number of U.S. banking clients by selling more products to existing customers, but that strategy becomes harder if the sector contracts or if budgets shift away from decisioning and analytics tools. Consumer behavior also plays a role. In a downturn, consumers borrow less, spend less on credit cards, and may delay major purchases such as cars and homes. Lower consumer demand naturally reduces the number of credit inquiries, which directly reduces Fair Isaac’s score revenue. A slowdown in loan applications across personal credit, auto lending, or mortgages would therefore be a clear headwind.

Customer concentration is a risk for Fair Isaac because a large share of its revenue depends on a relatively small number of powerful partners, particularly the three major U.S. consumer reporting agencies: Experian, TransUnion, and Equifax. These partners play a central role in distributing the FICO Score. When a lender requests a credit report that includes a FICO Score, it is the credit bureaus that package and deliver that score. As a result, these bureaus collectively account for a substantial portion of Fair Isaac’s Scores revenue and a meaningful share of total company revenue. If any of these relationships were to weaken or change, Fair Isaac’s financial performance would be directly affected. The core issue is that Fair Isaac relies on the bureaus not only as customers but also as gatekeepers. The bureaus decide how aggressively they promote Fair Isaac’s scores versus other options, how they price credit report bundles, and how they negotiate contracts. Because they are much larger companies with significant bargaining power, they can push for better pricing terms or contract structures that favor their own economics. Any shift in contract negotiations or sales priorities could reduce Fair Isaac’s revenue or profitability. This dependence becomes more complex because the three bureaus are also Fair Isaac’s direct competitors through their joint venture, VantageScore. Even though lenders overwhelmingly prefer the FICO Score, the bureaus have financial incentives to promote VantageScore, where they do not share revenue with Fair Isaac. This creates an inherent tension: Fair Isaac depends on partners who would benefit financially if lenders relied less on its flagship product. While the bureaus cannot simply drop the FICO Score, because lenders demand it and it is required for conforming mortgages sold to Fannie Mae and Freddie Mac, they can subtly influence adoption by adjusting marketing priorities, steering some lenders toward VantageScore, or bundling their own score more prominently in certain offerings. Any shift in bureau strategy could erode Fair Isaac’s market position over time. Finally, the company’s dependence on a limited number of third-party distributors, such as payment processors, international bureaus, and credit-reporting partners in other regions, creates similar risks. Losing any major distributor or experiencing a contract change could result in a sharp, immediate decline in revenue that Fair Isaac cannot quickly replace.

Cybersecurity is a risk for Fair Isaac because the company’s pro on analytics, and software interactions for banks, insurers, lenders, government agencies, and other major enterprises. This makes the company an attractive target for cyberattackers, including criminal organizations and state-sponsored groups. Any successful breach that exposes confidential information would damage trust in Fair Isaac’s products, harm its reputation, and carry significant financial and legal consequences. The company faces a wide range of cybersecurity threats, such as phishing, ransomware, malware, social engineering, denial-of-service attacks, and attempts at stealing proprietary algorithms. The increasing use of cloud infrastructure and AI tools adds layers of complexity. Moving software from legacy systems into cloud environments expands the surface that attackers can target, and AI-driven attacks can evolve rapidly and exploit vulnerabilities faster than traditional methods. Fair Isaac also uses, incorporates, or integrates third-party software components, which introduces risks if those suppliers experience cyber incidents or supply-chain attacks that insert malicious code into products Fair Isaac distributes. Even if Fair Isaac’s own systems remain uncompromised, a breach at a third-party vendor, a distributor, or a customer using Fair Isaac’s software on their own servers can still reflect poorly on Fair Isaac. Customers may blame the company for vulnerabilities, regulators may require public disclosures, and lawsuits could follow alleging negligence or insufficient safeguards. Because Fair Isaac deals with sensitive data and mission-critical decisioning tools, even a perceived weakness in cyber readiness can lead customers to reduce usage, delay new contracts, or move to alternative vendors. The company also faces legal and regulatory exposure. A major breach could trigger government investigations, result in statutory fines under privacy and cybersecurity laws, and lead to class-action lawsuits from consumers or clients whose information was exposed. The financial impact could be significant, but the reputational cost could be even more damaging. Fair Isaac’s customers rely on the accuracy and trustworthiness of its systems. Any doubts about data security would undermine confidence in the FICO brand, which is the company’s most valuable asset.

Reasons to invest

The FICO Score is a reason to invest in Fair Isaac because it remains the most trusted, widely adopted, and economically important credit scoring model in the United States. It is used by 90 percent of the top U.S. lenders and continues to be the standard measure of consumer credit risk across the entire financial system. This level of adoption is extremely rare and gives Fair Isaac a durable competitive advantage that few companies in the analytics or software industry can match. The FICO Score is deeply embedded in the lending infrastructure. Banks, credit card issuers, auto lenders, mortgage lenders, and investors all rely on it because it is time-tested, independently validated, and has demonstrated stable predictive performance through a complete economic cycle, including the Great Recession. Lenders value model stability above all else. Changing scoring models is disruptive, expensive, and risky, especially when billions of dollars in credit decisions depend on accuracy and consistency. This makes the FICO Score very difficult for competitors to displace. Fair Isaac is also the only independent scoring provider in the ecosystem. The FICO Score was chosen by market participants long before government-sponsored enterprises adopted it for conforming mortgages. Outside of mortgages, where there is no government preference, lenders continue to choose FICO because it consistently performs better. The credit bureaus have even given away their competing score, VantageScore, for free for years in some categories. But despite this, lenders still choose FICO because it delivers superior predictive power and because it is the recognized standard used in underwriting, pricing, investor risk models, prepayment models, and credit rating agency assessments for mortgage-backed securities. In a $12 trillion mortgage market, that standardization creates enormous switching costs and reinforces FICO’s dominance. Every credit score pulled by lenders generates a fee, and the vast majority of these scores are FICO Scores. This creates a high-margin, transaction-based revenue stream that scales with the overall health of credit markets. In addition, Fair Isaac has demonstrated meaningful pricing power. Management frequently highlights a significant value gap between what they charge and the economic value the Score provides to lenders and investors. They have been closing this gap gradually through price increases in mortgages and other segments. These are not one-time changes. Management has made it clear that pricing will continue to move upward in a predictable, methodical way over future years.

The innovations at Fair Isaac are a reason to invest in the company because they continually improve the performance, relevance, and value of the FICO Score while modernizing the infrastructure of the entire credit ecosystem. Fair Isaac does not simply rely on its market-leading position; it actively strengthens it by developing new scoring models, expanding distribution options, and creating tools that deliver better risk prediction for lenders and better outcomes for consumers. A major example is FICO Score 10T, the company’s most advanced scoring model. It uses trended credit data and incorporates additional information such as rental, utility, and telecom payments. By analyzing borrower behavior over time rather than relying on a single monthly snapshot, FICO Score 10T provides far deeper insight into creditworthiness. Fair Isaac’s research shows that 10T identifies 18% more likely defaulters in the key mortgage-lending band and enables about 5% more mortgage originations without increasing risk. This is a meaningful improvement and illustrates why lenders, investors, and insurers prefer FICO’s models over alternatives. The fact that nearly 40 non-conforming mortgage lenders have already adopted Score 10T demonstrates that Fair Isaac’s innovations are being embraced by the parts of the market that care most about predictive accuracy. Fair Isaac is also innovating by modernizing how FICO Scores are distributed. The new FICO Mortgage Direct License program allows tri-merge resellers—the firms that package credit data for mortgage underwriting, to calculate and distribute scores directly, without relying solely on the credit bureaus. This introduces competition into a part of the market that has historically been controlled by three players. The program has already generated strong industry interest, and Fair Isaac is working with resellers that collectively represent about 90% of mortgage volume. By offering two different pricing models, including a performance-based option, Fair Isaac gives lenders more flexibility while maintaining strong economics for itself. This type of innovation strengthens the company’s strategic position and increases its relevance to regulators, resellers, and lenders. The broader theme is that Fair Isaac continually upgrades its technology and scoring methodologies to stay ahead of competitors. The company integrates new data sources, applies advanced modeling techniques, and focuses on fairness and model stability, traits lenders value highly. Its innovations consistently widen the performance gap between its models and VantageScore, which struggles to match even older FICO models in terms of predictiveness. Because credit decisions involve real financial risk, lenders gravitate toward the most accurate model, and Fair Isaac’s commitment to innovation ensures that its scores continue to lead the industry.

Software is a reason to invest in Fair Isaac because it represents the company’s second major growth engine and is steadily becoming a larger, more scalable, and more profitable part of the business. While the Scores segment is the crown jewel, the Software segment offers long-term upside driven by subscription-based revenue, strong customer retention, and an expanding platform strategy that deepens Fair Isaac’s role inside financial institutions. The most important development is the rapid adoption of the FICO Platform. This cloud-native, modular environment allows banks, insurers, lenders, and other enterprises to centralize analytics, automate decision processes, and deploy new use cases far more efficiently than older standalone products. Platform annual recurring revenue grew 16% year over year, even as legacy non-platform revenue continued to decline as planned. This mix shift is strategically positive because platform products carry higher margins, stronger retention, and significantly better “land and expand” potential. Fair Isaac’s platform ARR has grown to become a meaningful share of the company’s software revenue base, now accounting for 35% of total software ARR. This rising share reflects strong customer demand and the steady onboarding of new platform users. As more clients adopt the platform for one specific need and then expand into additional workflows, the company earns more recurring revenue from each customer. This “land and expand” dynamic shows that the platform strategy is working as intended and that customer momentum continues to build. Fair Isaac’s software business also benefits from subscription economics, long-term contracts, usage-based pricing, and high ROI for customers. Many software deployments deliver payback within the first year, making the solutions extremely sticky. As legacy products sunset, customers migrate to the platform, increasing ARR quality and reducing the reliance on one-time license renewals. Finally, the Software segment diversifies Fair Isaac’s revenue beyond Scores. While smaller today, it has the potential to become a much larger contributor as digital transformation, fraud prevention, AI adoption, and decision automation accelerate across financial services.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 26,54, which is from fiscal year 2025. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 20,8% in the next five years, but 15% is the highest number I use. Additionally, I have chosen a projected future P/E ratio of 30, which is twice the growth rate. This decision is based on the fact that Fair Isaac has historically had a higher P/E ratio. Lastly, our minimum acceptable rate of return is already set at 15%. Doing the calculations, we come up with the sticker price (some call it fair value or intrinsic value) of $796,20. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Fair Isaac at a price of $398,10 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is called the Ten Cap price. The rate of return that an owner of a company (or stock) receives on the purchase price of the company is essentially its return on investment. The return should be at least 10% annually, and I calculate it as follows: The operating cash flow last year was 779 and capital expenditures were 9. I attempted to review their annual report to determine the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated for maintenance purposes. This means that we will use 6 in our calculations. The tax provision was 151. We have 24 million outstanding shares. Hence, the calculation will be as follows: (779 – 6 + 151) / 24 x 10 = $385,00 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. With Fair Isaac's Free Cash Flow Per Share at $32,07 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $506,25.

Conclusion

I believe Fair Isaac is a fantastic company led by strong management. Its moat rests on the dominance of the FICO Score, which functions as a near-monopoly in U.S. credit risk assessment, as well as the stickiness of its software offerings. The company has consistently delivered high returns on invested capital and reached a record level in fiscal year 2025, with free cash flow and free cash flow margins showing the same pattern. Macroeconomic factors remain a risk because Fair Isaac’s revenue depends on the volume of credit checks lenders run, which rises when borrowing is strong and falls during periods of high interest rates, weak consumer demand, or stress in the financial sector. Customer concentration is another risk, as a significant portion of revenue depends on major partners such as Experian, TransUnion, and Equifax, companies that distribute FICO Scores but also compete through VantageScore. Any shift in contract terms or strategic priorities could affect Fair Isaac’s market position. Cybersecurity is a notable concern as well, given the sensitive financial data the company handles and the critical decisions its systems support; a breach in its own systems or those of a vendor or client could damage trust and lead to financial and regulatory consequences. Despite these risks, the FICO Score remains a core reason to invest, as it is the most widely used and trusted credit scoring model in the United States, offering unmatched predictive performance, high switching costs, and strong pricing power. Innovation also strengthens the investment case, with advances such as FICO Score 10T and the new direct distribution model expanding adoption and reinforcing Fair Isaac’s lead over competitors. The Software segment adds further upside through growing, high-margin recurring revenue and increasing customer spend as adoption of the cloud-native FICO Platform expands across use cases. Taken together, these strengths make Fair Isaac a compelling long-term investment, and I would not hesitate to buy shares at the intrinsic value represented by the Payback Time price of $1012.

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