Chapter 5

What the price pays for growth

At $262.46, FactSet trades at roughly 14.7x forward earnings and 16x free cash flow — about half the 30–42x multiple it carried from FY2019 through FY2024. Discounted back at a 9% cost of equity, that price implies the market expects only about 2–3% annual free-cash-flow growth in perpetuity, against a business whose organic subscription growth has re-accelerated to 7.1%. The de-rating has opened a real asymmetry between price and quality. It has not made the stock statistically cheap, and the sell-side mean target sits fractionally below spot.

The de-rating in one number

FactSet spent most of the last decade priced as a premium compounder. At each fiscal year-end from FY2019 to FY2023 the stock changed hands at 30–42x trailing earnings; the peak close of $495.72 on 14 November 2024 valued it near 36x. By the FY2025 year-end that had fallen to 24x, and at $262.46 the trailing multiple is 16.9x — 14.7x on the FY2026 consensus of $17.81. The price roughly halved while earnings kept rising: FY2025 revenue grew 5.4% to $2.32bn, operating income 6.7% to $748.3m, and diluted EPS 11.8% to $15.55 [1].

Source: derived from reported diluted EPS (FY2025 Form 10-K [2]) and NYSE closing prices; "Now" is the $262.46 close of 16 Jul 2026 on trailing FY2025 EPS.

The cash the business throws off frames the same shift. FactSet generated $617.5m of free cash flow in FY2025 — operating cash flow of $726.3m less $108.8m of capital expenditure and capitalised software [3]. Against a $10.1bn market capitalisation that is a 6.1% free-cash-flow yield; the FY2026 earnings yield is 6.8%. Both sit at the high end of anything the stock has offered a buyer in years.

Sources: FY2025 free cash flow and the $460.4m returned to shareholders, FY2025 Form 10-K [4] [5]; FY2026 consensus EPS $17.81; yields on the $262.46 close and ~$10.1bn market cap.

What the price implies

The cleanest way to read a de-rated compounder is to reverse the arithmetic: hold the discount rate fixed and solve for the growth the price is paying for. A two-stage discounted-cash-flow — FY2025 free cash flow of $617.5m [6], a 9% cost of equity, a 3% terminal rate, and net debt of about $1.0bn — returns a fair value equal to today's price when free cash flow compounds at roughly 2.3% a year for the next decade. Push the assumed growth up in one-point steps and the fair value climbs quickly.

Source: two-stage DCF derived from FY2025 free cash flow [7]; 9% cost of equity, 3% terminal growth, ~$1.0bn net debt, 38.4m shares.

The gap between what the price pays for — about 2.3% — and what the business is currently delivering is the margin of safety. Organic annual subscription value grew 5.7% in FY2025 to $2,370.9m [8], and by the May-2026 quarter had accelerated to 7.1%, more than 250 basis points above the year-earlier rate [9] — a fifth consecutive quarter of acceleration [10]. If free cash flow simply tracks a mid-single-digit ASV path, the DCF points to $300–350 a share, 15–30% above spot. Getting there does not require the AI optimism the bulls invoke; it requires the franchise to keep doing roughly what it already does.

The scenarios that bound it

Three cases frame the range, each tied to how organic growth and margins evolve rather than to sentiment.

The bear case is a structural fade: organic ASV slips back toward 3% as AI-native tools chip at seat demand and pricing, and the margin investment underway does not pay back. Free cash flow grows 0–3%, and the DCF fair value falls to roughly $220–276 — spot to about 16% downside. The base case is the franchise holding its current cadence: organic ASV in the 5–6% band, free cash flow compounding with it, and fair value near $300–350. The bull case is durable AI monetisation lifting organic growth through 7% while the productivity programme restores margin; free cash flow growth of 6–7% supports $350 and above, and the multiple begins to re-rate off a decade-low base.

The distribution is asymmetric but not lopsided. The downside is real — a genuine break in the subscription model, not merely a slow year — yet even the bear DCF lands within about 16% of spot because the cash generation is so durable. The upside opens once growth is simply sustained, which is why the recent acceleration matters more than any single quarter's headline.

The counter-case, and what would settle it

The strongest fact against a value read is the sell-side's own arithmetic. The mean analyst price target is $254 and the median $246.50 — both below the $262 spot — and the rating distribution runs to ten holds, four sells and two strong sells against only two buys. On the desks that model this name quarter by quarter, 14.7x forward is close to fair, not cheap.

The second is margin. Adjusted operating margin fell to about 34% in the May-2026 quarter, down roughly 300 basis points year over year, as FactSet spent on marketing, performance compensation tied to ASV momentum, and AI-driven productivity work [11]. Adjusted EPS grew 6.1% that quarter — below the 7.1% ASV growth [12]. The re-acceleration is being bought with reinvestment, so near-term free-cash-flow growth may undershoot the smooth path a DCF assumes even if ASV holds.

The third is the absolute level. At 14.7x forward FactSet is below its own history and the broad market, but it is not a low-multiple stock in the sense a deep-value buyer means it — a mid-single-digit grower at ~15x is priced for a fair, not a generous, return. The safety on offer here rests on quality and durability: ASV retention above 95%, free cash flow that has risen every year, and a balance sheet that makes the bankruptcy the reader most fears a remote outcome. It does not rest on buying assets for a fraction of their worth.

What would move the read is observable and near. Organic ASV sustaining 7% or better for another two or three quarters, with the margin trough behind it, would validate the base-to-bull path and leave 14.7x looking like an anomaly the market corrects. Organic ASV slipping back below 5% while margins stay compressed would confirm the ~2–3% growth the price already assumes — and turn a de-rated compounder into a fairly valued one. The capital being returned while that resolves — $460.4m in FY2025, and a fresh $400m repurchase authorisation running to September 2026 [13] — pays the buyer to wait, and the accelerated Q3 buyback of about 926,000 shares for $203m shows management leaning into the lower price rather than away from it [14].