NICE Ltd. (NICE)

By both methods, the value today (DCF $260 · Multiples $178) exceeds the market price ($115).

Today — fairly valued: at $115 trades ~35.4% below its value discounted to today (~$178); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — Infravalorado: the target price ($222) plus dividends yield above the required average return (10%) — the business compounds.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$110.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($115) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-12.1%/year) than we project (6.0%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$0.3 bn of owner earnings in year 5 (vs ~$0.7 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). Cash accumulates the retained surplus —what is not returned as dividend or buyback—, so that EV falls and multiples compress going forward. The valuation is done on EV/owner-FCF (flujo de caja libre neto de SBC). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

NICE is an asset-light enterprise software business (capex ~0.6% of revenue) with stock-based compensation that is material against the flow (20.9% of FCF, only 5% of revenue, which is where the method measures the materiality of stock-based compensation): the metric expenses SBC by subtracting it from OCF before computing the margin (ocfMargin net of SBC, not raw OCF), and capex is then subtracted to reach owner-FCF. Year 0 (TTM=FY2025) starts from a margin net of SBC of 19.4% on revenue of US$2,945M. Year 1 is anchored on the FY2026 guidance reiterated in the August 5, 2026 release (6-K): revenue of US$3,170 to 3,190 million (+8.0% at the midpoint, with cloud up 13% to 15%), so the base case starts at the midpoint and the adverse and favorable scenarios at the ends of the range; the base path then decelerates to 4.0% by year 5. The guidance's other anchor —non-GAAP earnings per share of US$11.06 to 11.26, raised in that same release— is not carried into the model's margin, because it adds back the stock-based compensation and amortization the metric expenses; the release also shows the second-quarter operating margin compressed (GAAP 13.3% versus 22.1% a year earlier; non-GAAP 25.3% versus 30.2%), in tension with the base case's gradual expansion. The exit multiple (14× in the base case) sits at the floor of the mature software band (14-20×) for the narrow moat and the explicit risk of AI commoditization that the filing itself acknowledges. Buybacks are material (US$488.9M in FY2025, ~7.8% of market capitalization) and are modeled with an explicit sharesPath, without cash accumulation.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $222 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $115, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $222 in 5 years and a required return of 4.5% annually, the maximum to pay today is $178. Against the current market price ($115), the margin of safety is 35.4% (trades below the maximum → there is margin) and the total return at that price would be 14.1% annually.

• Entry multiple. Trades at 12×, below the floor of the mature software exit band (14×).
• Exit multiple. 14x owner-FCF, at the floor of the mature software band (14-20x) due to the narrow moat and AI competitive risk.
• Margin of safety. It trades at a real discount to value, though short of the required margin of safety.
• Expected return (base). CAGR of +14% at market price in the base case.
• Multiple sensitivity. With the business operating near the floor of its band, the return depends more on flow growth than on multiple expansion.
• Adverse scenario. The adverse case produces a negative return, reflecting that the AI commoditization risk is not fully priced in.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (132%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Operating margin. 21.9% in FY2025, in sustained expansion from 15.4% in FY2022.
• ROIC. ~16.2% on real invested capital from the balance sheet, comfortably above the 10% bar (excellent band).
• Cash conversion. Reported OCF is inflated by the add-back of SBC; owner-FCF net of SBC is substantially lower.
• Capex. Only ~0.6% of revenue; a genuinely asset-light business.
• Stock-based compensation. SBC equals 20.9% of FCF —material— although falling in absolute terms and as a % of revenue.
• Tax rate. 13.1% effective in FY2025, benefited by a favorable non-recurring tax settlement; used regardless as it is the real effective rate.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

NICE's growth is increasingly concentrated in cloud (76% of revenue, +12.8% year over year), driven by CXone adoption and, since September 2025, by Cognigy and the agentic AI offering, while the legacy on-premises business (Services, Product) declines from structural migration. Stock-based compensation falls in absolute terms but remains material against free cash flow (20.9%), requiring it to be expensed in the valuation metric. The effective tax rate is volatile due to a one-time tax settlement in FY2025; the real effective rate is used rather than an average, following the rule of not inventing data.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-dic-2025): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Revenue growth. 7.7% year over year in FY2025, decelerating from 15% in FY2024.
• Cloud growth. Cloud +12.8% year over year, now 76% of the total — the real growth engine.
• Legacy business decline. Services −6.0% and Product −5.2% year over year from migration to cloud.
• Acquisitions as a growth engine. Cognigy (US$887M) and another acquisition (US$36.5M) in 2025 expand the agentic AI offering.
• FY2026 guidance. FY2026 revenue reiterated at US$3,170-3,190 million (+8.0% at the midpoint) and non-GAAP earnings per share raised to US$11.06-11.26 (release of August 5, 2026).
• Penetration runway. 85 of the Fortune 100 are already customers; the largest incremental penetration comes from expanding within the installed base.

• Revenue diversification. Two segments (Customer Engagement 83.5%, Financial Crime and Compliance 16.5%) of the same economic nature of cloud software.
• Recurrence. 76% of revenue is cloud/subscription; an installed base of more than 25,000 customers reduces demand volatility.
• Customer concentration. No customer-concentration data in the available filings; the base of 25,000+ organizations suggests low concentration.
• Cyclicality. Spending on contact center and compliance software is relatively defensive, tied to critical and regulatory operations.
• Pricing power. Pricing partially based on consumption; no quantitative evidence of independent price increases in the filings.
• AI commoditization risk. The filing itself acknowledges that AI providers may train models with data derived from NICE's interactions, eroding differentiation.
• Dependence on third-party infrastructure. A large part of the cloud offering runs on AWS/Azure and third-party licensed language models.

• ✓Leverage (net debt / EBITDA)Net cash $0.4 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 132% of ROIC
• ✓Value creation (ROIC − 10% bar)+6pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 0.1x — no over-investment
• –Float / working capitalNeutral WC
• !Dilution (SBC % of revenue + shares)SBC 5.0% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Debt. No financial debt (long- and short-term debt at zero at FY2025 close).
• Cash. Cash and short-term investments of US$417M, after funding the Cognigy acquisition with own resources.
• Liquidity. No leverage and positive, growing operating cash generation over time.
• Equity. Net equity of US$3,877M at FY2025 close, expanding despite buybacks.
• Geopolitical risk. Operations with development concentrated in Israel; regional geopolitical risk exposure not quantified in the filings.

• CEO transition. Scott Russell took over in January 2025 with a declared focus on accelerating the AI strategy.
• Capital allocation. In 2025 the dominant use was M&A (Cognigy, ~65% of deployed capital), funded with own cash without debt issuance.
• Share buybacks. US$488.9M in FY2025, growing every year since 2022; steadily reduces the share count.
• Dividend. No dividend since 2017; all capital return is via buybacks.
• Corporate transparency. No DEF 14A proxy available on EDGAR (foreign issuer); management share ownership could not be verified.

• motivated sellers: the second-quarter 2026 release (August 5, 2026) showed the operating margin compressed (GAAP 13.3% versus 22.1% a year earlier; non-GAAP 25.3% versus 30.2%), a quarterly deterioration that coexists with sustained annual guidance (revenue reiterated, non-GAAP earnings per share raised)
• perceived AI commoditization risk: the filing itself acknowledges that AI providers may replicate functionality by training models with data derived from NICE's operations, a real risk that has not yet materialized in the margin
• moderate analyst coverage after the drop, with Wall Street's average price target (~US$125.85) still well above the market price

The source of the discount that can be verified in the filings is the second-quarter 2026 margin compression together with the AI commoditization risk the 20-F discloses; the annual guidance does not follow it: FY2026 revenue reiterated at US$3,170-3,190 million and non-GAAP earnings per share raised to US$11.06-11.26. The base path is anchored at the midpoint of that guidance and the exit multiple at the floor of the mature software band.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -1%/year (-7% total): the margin of safety protects the downside. The bull (+26%/year, +215% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• AI commoditization. Competition from hyperscalers and LLM providers that could replicate functionality and pressure prices.
• Third-party dependence. Cloud infrastructure and language models licensed from AWS/Azure and external providers.
• Migration away from voice. Voice solutions still generate a significant portion of recurring revenue; there is no guarantee digital will offset the decline.
• Cognigy integration. Execution risk in the company's largest and most recent acquisition, central to the agentic AI strategy.
• AI regulation. The EU AI Act and U.S. state regulations impose transparency and human oversight requirements on products with embedded AI.
• Q2'26 margin compression. The second-quarter 2026 GAAP operating margin fell to 13.3% (22.1% a year earlier) and the non-GAAP margin to 25.3% (30.2%); if it persists, the base case's margin expansion does not happen.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 16% above the 10% bar, but the margin is limited (+35%) → excellent business at a fair price.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 6% at a multiple/growth of 2.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 9% (EBIT/EV) + ROIC 16% → makes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -12% vs our 6%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -1%/yr, bull-scenario ceiling +26%/yr over 5y → capital protected, asymmetry in your favor.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: switching costs, intangibles, network effects, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -12%, within what we project (6%) — the story squares with the numbers.