Three Reasons Why Growth Investors Should Consider Fair Isaac (FICO)

Growth investors often look for stocks that offer above-average growth in their financials, helping these companies capture market attention and generate impressive returns. However, finding a truly exceptional growth stock can be quite challenging.

Inherent in growth investing are certain risks, including stock volatility and the chance of investing in a company whose growth potential may be dwindling. Yet, thanks to sophisticated tools like the Zacks Growth Style Score, investors can identify cutting-edge growth stocks that have real prospects for success beyond traditional metrics.

Currently, Fair Isaac Corporation, commonly known as FICO, stands out as a recommended choice. This financial services company boasts a strong Growth Score in addition to a high Zacks Rank, suggesting that FICO is well-positioned to outperform the market.

Numerous factors contribute to the appeal of Fair Isaac stock as a growth pick. Below are three of the most compelling reasons investors may want to consider this company:

Earnings Growth

Earnings growth is arguably the most crucial indicator for growth investors. Stocks that demonstrate robust profit levels often attract more attention and investment. A common benchmark for desirable growth is double-digit earnings growth, as it signals strong future prospects and potential stock price increases.

Fair Isaac's historical earnings per share (EPS) growth rate is an impressive 26.1%. However, looking ahead, analysts expect FICO’s EPS to grow by 25.2% this year, significantly surpassing the industry average of 6.7%. This growth forecast highlights the company's strong trajectory compared to its peers.

Cash Flow Growth

For any company, cash flow is vital, but for growth-oriented businesses, higher-than-average cash flow growth is particularly important. A strong cash flow enables companies to expand operations without relying on costly external funding sources.

Currently, Fair Isaac has achieved year-over-year cash flow growth of 5.4%, exceeding many competitors. For context, this rate contrasts with the industry average of a troubling -13.4%. Over the past 3-5 years, FICO's annualized cash flow growth has been 20.3%, compared with the industry average of 9.1%, further demonstrating the firm’s strong financial health.

Promising Earnings Estimate Revisions

Investors should also take note of earnings estimate revisions, as these trends can provide valuable insights into a stock's potential. Positive movements in earnings estimates often correlate with near-term stock price increases.

For Fair Isaac, there have indeed been upward revisions in current-year earnings estimates. In fact, the Zacks Consensus Estimate for the year has risen by 0.1% over the last month, indicating growing confidence among analysts regarding FICO’s performance.

Conclusion

While FICO currently holds a Zacks Rank of #2, reflecting solid earnings estimate revisions, it has also earned a Growth Score of B thanks to the factors discussed above. Together, these indicators suggest that Fair Isaac has the potential to outperform the market, making it a compelling opportunity for growth investors.

Growth, Investing, Stocks