For a company in the thick of all the excitement about smartphones, tablets, and cloud computing, Nuance Communications (Nasdaq: NUAN) is actually a pretty boring stock.
Nuance has a tendency to hit analyst estimates right on the nose. According to Zacks, the company reported exactly the earnings Wall Street had expected in three of the last five quarters. This week's second-quarter report was somewhat of an aberration of recent trends; Nuance actually beat the Street by a penny, but reported slightly lower sales than expected.
Part of the non-excitement lies in Nuance's stock chart, which has effectively gone nowhere since the last earnings report and underperformed the S&P 500 over the last year as well.
Shares jumped as much as 14% earlier in the week on rumors that Apple (Nasdaq: AAPL) might want to buy the company. The report was strong enough to keep share prices elevated, though no Apple deal has materialized. Instead, Nuance has announced an acquisition of its own, plunking down $157 million in cash for printing management specialist Equitrac. That deal should add about $60 million to non-GAAP revenue in 2012 along with roughly $0.05 per share of incremental non-GAAP earnings.
Three months ago, CEO Paul Ricci talked himself warm about the mobile devices and home entertainment systems lusting after his voice recognition software, including brand-name customers such as Motorola Mobility (NYSE: MMI), Sony (NYSE: SNE), and Panasonic (NYSE: PC).
But these things obviously take time. Ricci is still enthusiastic about his design wins in the mobile and consumer space, particularly when it comes to automotive customers using voice input to control various systems in their cars. Still, the segment isn't growing any more quickly than the rest of the company, which in turn is growing more slowly than the software industry at large.
I want to like Nuance thanks to its Johnny-on-the-spot technology at this crucial inflection point in computing history, and perhaps even moreso because the stock has been recommended by both our Motley Fool Hidden Gems and Stock Advisor newsletters. It's also a very respectable four-star stock out of five in our CAPS system.
But the growth engines never seem to fire up, and Nuance's margins are embarrassingly low for a software firm. There's something missing in the execution here. This one goes on my Foolish watchlist for some disinterested sleuthing. Click here to add Nuance to your own watchlist, or any other stock that piques your interest today.
