Known for supplying voice recognition solutions for Apple’s (AAPL) Siri, Nuance Communications (NUAN) is finally getting out of its own shadow. In the second quarter, the company reported good revenue and profit figures. Profitability rose 4.7 percent while net bookings grew 31% year-over-year to $410.4 million. Though the stock is near a yearly high, the application software supplier is appealing.
At a forward P/E of 15 times, the stock is fairly valued at worst. Q2 numbers suggest the business is starting to gain some traction. Nuance earned $0.43 per share. Cash flow was strong at $125.4 million. The revenue mix is improving, as shown by operating margins exceeding management’s internal targets.
Nuance managed its costs closely and improved its productivity. Three-quarters of its revenue are from recurring sources. Cloud and hosting revenue accounted for 40 percent of total revenue. The solid results are giving management the confidence in raising its new bookings targets. Nuance now expects new bookings growing between 6% to 10%, up from 2% to 6%.
Risk
Flat revenue growth in the second half of the year may limit the upside in the stock price in the near term. Shareholders have 2018 to look forward to as investments in the business lead to better products and customer wins.
