I have been following [$FICO](https://finance.yahoo.com/quote/FICO/) for a couple of years now and had my first entry / exit from $1k > $2k. Today, the stock is trading around $1k again with higher margins, new T-10 scores, and stock buybacks planned for the year. I think the business is massively oversold by institutional investors, given the software selloff and regulatory news, which I do NOT believe will actually have an impact on the ever-improving fundamentals
TL;DR - 27% of the discretionary portfolio into FICO given the entire credit-using U.S. population uses the company every year, which will ironically help me buy a house
**Transaction Thesis**
* Valuation: Currently at a $29bn market cap, I think this is a long-duration compounder that can realistically 3–4x over time. Look at the list of $100bn companies with worse margins and higher AI headwinds. Currently trading at 23x FW EBITDA with a <1 PEG ratio, both of which are historically double
* Regulatory: Federal Housing Finance Agency (FHFA) under Director Bill Pulte, has targeted FICO for high, monopolistic pricing in the mortgage sector. FICO charges like $9.95 for a score which is buried in the average $6k in closing costs for a house. FICO is NOT the reason that consumers can't afford a house
* Competition: Underwriters don't have to update their models to track two different scores and it's more likely in my mind that VantageScore (jointly owned by Equifax, Experian, TransUnion) would be at a greater risk of co-conspiring against FICO when it comes to selling information to the business
* Scale: 90% of the eligible US credit borrowing population uses FICO, whether they know it or not, with lenders pulling 10+ billion scores annually
* Products: The minute Advantage Score's model caught up to the quality of FICO's legacy model, the long-time CEO dropped news of FICO's new T-10 model, as supported by their [white paper ](https://www.fico.com/en/latest-thinking/white-paper/fico-score-10t-materially-outperforms-vantagescore-4-0)to be a better product statistically
* Entrenchment: Switching costs / not using the best models would be irresponsible for lenders, particularly at scale, as institutions are going to use the best model possible to underwrite, every time
* Data: Scoring quality moat with around 30+ years of checks which won't be easily replaced by some Claude bot AI remake, even if you can build a model, the proprietary dataset here is unbelievably valuable to lenders for accuracy
* Investors: +90% held by institutional investors who have participated in this massive sell-off of SaaS businesses, where only 33% of FICO's revenue comes directly from software (although the broader business is a Rule of 40+ company)
* Repurchases: Approved buyback size of \~$1.5bn in February, with $1.25bn+ remaning
* Debt: holding around 3x EBITDA, and increasing at healthy levels alongside growth, with potential to be used for the buy backs itsself
* Top/Bottom Line: Consistent top line growth which looks to be about a 9.5% CAGR with EBITDA margins expanding annually to \~50%, which is why this company gets overclassified as pure-play software
* Targets: Revisions today from some top players with an average target at $1500+ supported by revised Q1 '26 guidance from the earnings call
* Upcoming Earnings: Take a look the strong track record of hitting earnings, they are projecting to increase EPS this coming quarter as well
* Risks: Cyclicity in the lending environment (which is under hightened scrutiny right now), continued, valuation multiples are still generally higher than other "Buffett" type businesses (but hits on other categories like quality managament, compeittive moat, profitability, and scale), and the regulatory situation which I hit above that I think Bill Plute in the will be able to negatively impact the busniess for the long term
I bought the dip, twice, and looking to get in again below $1100 with the recent pull back. I think anything around $1000 is a good price. If the fundamentals of the business stay strong, I will continue to buy on the way down. Open to feedback and will share updates if it gets interesting. I tried posting this with my inital buys but didnt have enough karma, lol. Thanks for your time.
(Separately, I am long $RDDT, $HOOD, $NVDA, $BX, $BRK.B)
