Every investor can appreciate a stock that consistently beats the Street without getting ahead of its fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with improving financial metrics that support strong price growth. Let's take a look at what Nuance Communications' (NASDAQ:NUAN) recent results tell us about its potential for future gains.

What the numbers tell you
The graphs you're about to see tell Nuance's story, and we'll be grading the quality of that story in several ways.

Growth is important on both top and bottom lines, and an improving profit margin is a great sign that a company's become more efficient over time. Since profits may not always reported at a steady rate, we'll also look at how much Nuance's free cash flow has grown in comparison to its net income.

A company that generates more earnings per share over time, regardless of the number of shares outstanding, is heading in the right direction. If Nuance's share price has kept pace with its earnings growth, that's another good sign that its stock can move higher.

Is Nuance managing its resources well? A company's return on equity should be improving, and its debt-to-equity ratio declining, if it's to earn our approval.

By the numbers
Now, let's take a look at Nuance's key statistics:

NUAN Total Return Price Chart

NUAN Total Return Price data by YCharts.

Criteria

3-Year* Change

Grade

Revenue growth > 30%

73.8%

Pass

Improving profit margin

1,360.0%

Pass

Free cash flow growth > Net income growth

71.5% vs. 1,156.0%

Fail

Improving EPS

912.5%

Pass

Stock growth (+ 15%) < EPS growth

46.3% vs. 912.5%

Pass

Source: YCharts. *Period begins at end of Q3 2009.

NUAN Return on Equity Chart

NUAN Return on Equity data by YCharts.

Criteria

3-Year* Change

Grade

Improving return on equity

872.1%

Pass

Declining debt to equity

86.8%

Fail

Source: YCharts. *Period begins at end of Q3 2009.

How we got here and where we're going
Five out of seven possible passing grades isn't too shabby. Nuance falls short of a better score only because its improvement from a positive baseline of free cash flow in 2009 hasn't been as meteoric as its rise from negative earnings in the same period, and as a result of additional debt incurred over the last three years. As the company progresses, there's no reason why these two failing grades can't be turned around. How might Nuance do so? Let's take a look at what's going on behind the scenes.

It was a busy fall for Nuance, which announced three acquisitions -- of Ditech Networks for its synergies with Nuance's mobile and enterprise segments, and of Quantim and J.A. Thomas in an effort to expand its health care offerings -- in the span of less than a month. These three buyouts should help Nuance expand, and also help explain the sudden surge of debt, which was issued shortly after the acquisition announcements. Mobile, enterprise, and health care all happen to be posting strong growth for Nuance already, so these three acquisitions should only enhance the company's position in the still-young voice-control market.

However, where there's a profit to be made, there's bound to be a threat to any market leader. Nuance's mobile efforts have become inextricably bound up in the usefulness of Apple's (NASDAQ:AAPL) Siri, thanks to Apple's decision to make the program a key part of its marketing. That's led to a class action suit against Apple that won't do anything to burnish Nuance's credibility as an accurate transcriber. In the meanwhile, both Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) have speech-recognition capabilities for their mobile operating systems, and neither uses Nuance's technology. Nor does AT&T's (NYSE:T) voice platform, which is the most open of the bunch, and which could become the Android (that is, open and adaptable) of the speech-recognition world.

Nuance has a technological head start over most rivals, but these are very well-heeled companies. But mobile isn't everything, and Nuance's capabilities have been deployed in everything from Ford (NYSE:F) infotainment consoles to automated voice biometrics services, which can identify users by their unique voiceprints. Beyond personalizing customer-service software, voice biometrics is one of three promising bio-security measures that could eventually replace alphanumeric passwords as the access key of choice. If Nuance can stake its claim as the most accurate voiceprint identifier, it stands a good chance of becoming the go-to company for security purposes.

As is the case with any fast-moving technology, dominance today doesn't predict dominance tomorrow. Nuance, however, has not been resting on its laurels. As long as Nuance can maintain a positive trajectory while pushing the boundaries of voice recognition technology further than its peers, then it should justify investors' optimism.

Putting the pieces together
Today, Nuance has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

The Motley Fool owns shares of Apple, Microsoft, Ford Motor, and Google. Motley Fool newsletter services have recommended buying shares of Nuance Communications, Google, Apple, and Ford Motor. Motley Fool newsletter services have recommended creating a synthetic long position in Ford Motor. Motley Fool newsletter services have recommended creating a synthetic covered call position in Microsoft. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.