I've been monitoring FICO for a long time on my watchlist because it has historically been the definition of a toll booth/ monopolistic business. Yet, the fears around Vantage Scores disrupting their business is dragging the stock down to levels I never expected.
FICO used to trade for an 88 P/E and a 54 fwd P/E back in 2022. Obviously, the stock was trading for a premium back then, but companies with wide moats deserve to trade higher. Nevertheless, multiple compression is definitely a factor in why the stock is down over 56% in the past 1 year.
Now, when you look at the actual fundamentals it tells a different story. Revenue is actually accelerating as it grew 37% in Q4 2024 to now 49% in Q2 of 2026. This is where it gets interesting. When you have an investment that is plummeting in stock price, but the fundamentals are improving... those are the situations that often can become great investments.
Afterall, FICO still has the credibility and its still deeply entrenched in the lending ecosystem. A switch from FICO to Vantage affects everything from compliance, securitization, internal risk models, underwriting systems, and so much more.
I also think it's important to note that FICO isn't just banking on their moat to weather the storm either. They are actively fighting back and introducing the FICO 10T, a direct response to the Vantage 4.0 that everyone is so scared about. An independent study at Milliman found the 10T to be more predictive across mortgage populations.
So, FICO is still innovating and trying to find paths to grow. This isn't some dino bones/ancient company that is sitting on their hands. Now, they are absolutely using their existing moat to drive up prices (that's been abundantly clear hence why the government is trying to introduce competition).
FICO won't be able to drive up prices forever and you are already seeing gross margins, operating margins, and profit margins compress as a result of the competition. Revenue may be booming, but FICO is spending a lot more to incentivize that growth.
Vantage isn't doing much to immediately erode the FICO moat today, but I think it's plausible that it becomes more trusted and maybe even cheaper down the line.
I've kept FICO on the watchlist because of it's great moat, but there are cracks. Perhaps the threat is overblown today, and I don't think FICO should be trading this cheap. However, the market is a forward-looking entity and it is pricng in future where FICO has to share this space.