Here it is halfway through 2007 -- basketball and hockey seasons are behind us and the sleepy summer heat is settling in. That means it's time for a midyear stock review. Up this time is speech specialist and Motley Fool Hidden Gems recommendation Nuance Communications
Investors in Nuance should be quite pleased -- the stock has risen 57% since the start of the year, trouncing a venerable return of 9% from the Nasdaq. But the earnings haven't been rising along with the stock -- at least not the GAAP kind of earnings. The last few quarters have been what struggling sports teams -- and their die-hard fans -- call a "building year," where the fundamental basis of the company is built out at the expense of near-term profits. In its last two quarters, Nuance reported a slight loss due to several expenses, but management contends that in the non-GAAP world, business is going well. Indeed, the company continues to grow licensing revenue in everything from navigation in Ford
What makes steady earnings growth difficult is the serial acquisition spree the company has continued. After closing the acquisition of BeVocal earlier this year, management announced the intention to purchase VoiceSignal, a company shipping voice control software in devices such as Motorola
To get a peek at what top investors think of Nuance's prospects going forward, we can tap the Motley Fool CAPS database of investor opinions and ratings on the stock. CAPS players currently give the company a full five-star rating, one notch above the four-star rating it has held for most of 2007 so far.
More than 550 CAPS investors have registered bullish commentary, with many expecting increased profits in the second half of the year as product lines mature and newly acquired companies integrate into operations. Many investors also contend that speech-driven control and applications such as mobile search will eventually flourish in a wide variety of consumer markets. More than 96% of CAPS investors see the company well positioned to capitalize on this future demand and expect the company to top the S&P going forward.
More Foolish talking points:
Nuance has returned Motley Fool Hidden Gems subscribers almost 170% since being recommended in January 2006. To see what other recommended stocks are beating the pants off the market, take a free 30-day trial.
Fool contributor Dave Mock has been in a building year basically in every season to date. He owns shares of Motorola and is the author of The Qualcomm Equation. The Fool's disclosure policy is loud and proud.
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