FICO is a buying opportunity; despite increased competition and higher risk assessment, the stock is undervalued with ~18% upside potential.

We received some unfortunate news for FICO (FICO) stock investors, as the director of the Federal Housing Finance Agency, Bill Pulte, announced a change in mortgage pricing, opening the door to competition for FICO.

This announcement caused FICO's stock to drop by more than 26% immediately after the news was released. So, I'm going to share with you how I update my assessment of FICO stock, and whether I think it's time to get rid of this stock or if it's a buying opportunity?

It enjoyed a near-total monopoly in the market, which allowed FICO to continue raising prices and achieving very lucrative profit margins. This news could affect this monopoly and that position, and ultimately FICO's pricing power.

I think it's important to remember that the market was already expecting FICO to start losing its competitive advantage. Her defensive trench was eroding. FICO's stock had already fallen significantly before this news, hadn't it?

The stock opened at around $1,600 per share, and prior to this announcement it was trading at around $800 per share. It was already down by about 50%.

So, there was already a discussion. There was speculation, there was expectation and realization that FICO was losing that competitive advantage. It was losing its near-monopoly position in credit ratings within the mortgage sector.

Now, following this news, FICO's stock has fallen by more than 63% since the beginning of the year. FICO's stock was already trading at its lowest valuation in years, and this news, which sent the stock price down by 26%, made it even cheaper.

It is currently trading at a forward price-to-earnings ratio of 11.6 . This is the lowest price this stock has ever reached.

But this is not the case for Vico. In fact, if you look at analyst estimates , Wall Street analysts who follow FICO expect the company's revenue to grow by 28% in the current fiscal year ending in September, and they also expect another 14% growth for the fiscal year ending in September 2027 , and an additional 12% growth in the fiscal year ending in September 2028.

Therefore, even against this macroeconomic backdrop, Wall Street analysts closest to FICO estimate strong double-digit growth for the company over the next few years.

Therefore, the way I adjust my assessment of FICO is by increasing my risk assessment. And I do that through my standard for " beta", which I have raised to 1.75.

To put this number in context, if you look at FICO's actual beta based on its 5-year monthly average price movement relative to the S&P 500, you will find it at 1.32. Therefore, I adjusted this figure of 1.32 upwards to 1.75.

Even after this upward adjustment, FICO stock appears to be undervalued with an upside potential of approximately 18%. To give you more context, if you enter an estimate of 1.32 into my model, it would result in an estimated price for FICO stock of over $1,045 per share with upside potential exceeding 69 %.

But I don't think it's reasonable to assume a 1.32 measurement for "beta" because " beta" is a backward-looking measure , and past risks were much lower for " fico" compared to future risks.

Therefore, I think it would be wise for analysts to increase their risk assessment for FICO going forward because the dynamics are now changing with increased competition. However, even after accounting for the high risks with a significant upward adjustment in light of these developments, FICO stock appears to be undervalued whether I measure on a price-to-earnings ratio basis or on a discounted cash flow basis .

Therefore, I believe this decline represents a buying opportunity for FICO stock investors, but the risks are much higher. The big factor will be whether these revenue estimates prove to be correct.

If the company continues to achieve double-digit or near-double-digit revenue growth, I believe this will be an exceptional buying opportunity for long-term investors.

However, if FICO begins to experience an erosion of its competitive advantage, leading to a collapse in revenue growth as its revenues decline and even turn negative, the stock could become a value trap for investors.

I think it's an opportunity. I believe the company is still achieving strong revenue growth, if not double digits, then perhaps a high single digit, and I think that is enough to consider it a buying opportunity for long-term investors.

Therefore, I have renewed my "buy" rating for Fair Isaac stock today, September 29, 2026