The time to buy stocks is when they’re cheap. But with some high-quality names, this happens once in a decade at most.

Experian (LSE:EXPN) shares are down 36% from their highs. So is now the time to strike?

How cheap is the stock?

In valuation terms, Experian shares look like a once-in-a-decade opportunity. The stock is trading at a price-to-book (P/B) ratio of 5.9.

The last few months aside, it hasn’t traded at that level in the last 10 years. On average, it’s been more like 8.98.

If it gets back to this level, investors are looking at a 52% gain. And that’s not factoring anything in terms of growth.

The big question is whether it’s likely to get back there. The company has been facing two big challenges recently.

The first threat is disintermediation. This comes from Fair Isaac Corporation also known as FICO. 

US lenders use FICO scores to assess borrowers. FICO licenses its algorithm to Experian (and others) who apply this to their data to create a score.

That’s a very profitable business for Experian. FICO, however, is looking to license directly to lenders, bypassing the FTSE 100 firm in the process.

The US is a huge market for Experian, so the threat is one to take seriously. But the company has been hitting back.

Experian’s response

In response, Experian – along with Equifax and TransUnion – have come up with their own algorithm. It’s called Vantage.

If they can convince lenders to use this instead of FICO, the disintermediation threat collapses. That, however, won’t be entirely straightforward.

Vantage has been approved by the US regulators. But there’s still a question of whether lenders will actually use it. 

A lot comes down to what happens when lenders try to sell mortgages on. Whether they’ll achieve full value using Vantage instead of FICO remains to be seen.

Artificial intelligence

The other issue is artificial intelligence (AI). The concern here is that lenders might try to use AI products instead of Experian’s reports.

That won’t work for banks originating mortgages that they want to sell on. But that’s only one part of the business. 

Credit data is also used for things like credit cards and buy-now-pay-later loans. And those don’t face the same regulatory challenges.

The big question is whether demand for Experian’s reports will be as strong in these areas. I think that remains to be seen.

Data assets

Experian’s key asset is its data. This is virtually impossible for a new AI startup to replicate, so it’s hard to see competition on that front. 

The question, however, is how significant that will be. Lenders might think they can use AI to do more with less data. Whether or not they can remains to be seen. But the stock market seems to think there’s a real threat here. 

If that’s right, Experian could well find itself in a much weaker position when it comes to pricing. And that’s the problem for the business.

What should investors do?

There’s a chance that a decade-low multiple could be a huge buying opportunity. But investors need to be honest with themselves about the threats.

Exactly how all of this resolves I’m not sure. I do think, however, that there are much more obvious opportunities elsewhere at the moment.

Stephen Wright has no position in any of the companies mentioned.