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Nuance Seems to Be Icahn's Most Innovative Company

December 05, 2013 | About:
On Dec. 4, Carl Icahn added Nuance Communications Inc. (NUAN) for the sixth time in the last five months. Nuance provides speech, imaging and keypad solutions for businesses, organizations and consumers worldwide. Let's take a look at this company and try to explain to investors the reasons this is an apparently appealing investment opportunity.

Next-Generation Dragon Drive

Internet plays a critical role in today´s businesses and organizations because it has created demand for Internet-based software. The company focuses on helping people using their phones, tablets, TVs, cars and computers, just by using their voice. Dragon Drive is a part of Nuance's broad Dragon portfolio, which includes the Dragon ID voice verification software for smartphones and mobile phones, showing good acceptance in the market. Also, in the recent months, the firm introduced a new generation of its Dragon Drive connected car platform. Just by using the voice (and available in 12 languages), it enables consumers to search quickly and easily for what people say, for example, "Find the nearest restaurant," "Looking for bars open today," "Find financial news" and more.

Doctors and Others Health Care Professionals

Nuance is the leader in health care speech recognition and dictation software. In March, Nuance introduced a product called Clintegrity 360, whose innovative features are speech-recognition and language-understanding technology as well as coding software. Nuance's technology will help significantly improve productivity for computer-assisted coding and clinical documentation.

Valuation

In terms of valuation, its price-to-book ratio of 1.6 indicates a discount versus the industry average of 2.39 while the price-to-sales ratio of 2.3 is above the industry average of 1.83.

Earnings per share (EPS) decreased in the most recent quarter compared to the same quarter a year ago and is below the historical 10-year average.

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Finally, I always like to see one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity. The ratio has decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness. Nevertheless, it is better than those shown by Jive Software Inc. (JIVE) and NetSuite Inc. (N).

Final Comment

Nuance´s revenue growth has doubled the industry average of 7%. I expect this trend to continue aided by the innovative new products. Despite having found a major weakness in the result of ROE, the firm has other highlights like its revenue growth since 2005.

For a long-term perspective, I would advise fundamental investors to consider adding Nuance to their portfolios as the Voice Ads product has the potential to expand Nuance’s customer base.

Hedge fund managers have also been active in the company. Gurus like Ray Dalio, Steven Cohen and Louis Moore Bacon have invested in it.

Disclosure: Damian Illia holds no position in any stocks mentioned.



About the author:

Damian Illia
A fundamental analyst at Lonetreeanalytics.com constantly looking for value and income investments.

Visit Damian Illia's Website


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