Have I just missed my chance to buy this world-class FTSE 100 stock?

The FTSE 100 contains some elite global businesses and Experian (LSE:EXPN) might just be the best of them. The catch for investors is that the share price usually reflects this. 

But earlier this month, the stock fell almost 6% on news of a potential threat to its business model. It didn’t last long though, so have I missed my buying opportunity?

What happened?

As a credit bureau, Experian collects and stores huge amounts of data about potential borrowers. When lenders want to assess risk, they ask the company for a credit score. 

It generates this by combining its own data with an algorithm it licenses from Fair Isaac Corporation (Fico). It then sells the end score to the potential lender.

Experian therefore operates as an intermediary between Fico and the banks. But earlier this month, Fico announced plans to license its algorithm directly to lenders. 

The move amounts to a pricing war. And it threatens the FTSE 100 company’s ability to charge a mark-up on its licensing costs, which has been a high-margin revenue stream.

How big is the problem?

Fico going direct to lenders doesn’t threaten to cut the credit bureau out entirely. Its data remains indispensable, but it could still mean a significant loss of revenue.

On top of this, there’s a possibility that Fico might have overplayed its hand. Together with Equifax and TransUnion, Experian has its own competitor to Fico – VantageScore.

Right now, Fico is the industry standard and US lenders need its scores to sell mortgages on to Fannie Mae and Freddie Mac. But that’s not guaranteed to last.

Given this, it’s certainly premature to write off Experian going forward. But with the stock now back where it was before the news, have I missed my opportunity?

Too late to buy?

Experian’s valuation metrics are roughly in line with their five-year average. So – on the face of it – the opportunity to buy the shares at an unusually good price has passed.

Despite this, however, the stock does trade at a discount to its US counterparts. As a multiple of earnings or free cash flows, the FTSE 100 firm is significantly cheaper.

The businesses aren’t identical. But they have a lot in common and are very similar in terms of a number of their most important competitive strengths and weaknesses.

It’s always better to buy a stock at a lower price than a higher one. But missing the recent drop in Experian shares might not automatically mean my opportunity to buy has passed entirely.

Competitive strengths

With any company that acts as an intermediary – as Experian does – there’s always a risk of suppliers trying to go direct to customers. But it’s not always as straightforward as that. 

Fico’s move is a bold one, but it puts it into competition with its key suppliers. And as things stand, Experian’s data can’t be removed from the picture entirely.

The stock market has recovered from its initial reaction to the news and has gone back to focusing on the credit bureau’s key strengths. As a result, the stock has bounced back. 

Despite this, I think it might still be worth considering. Compared to its US counterparts, shares in the FTSE 100 firm look significantly more attractive to me.

The post Have I just missed my chance to buy this world-class FTSE 100 stock? appeared first on The Motley Fool UK.

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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian Plc and Fair Isaac. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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