Shares of Nuance Communications (NASDAQ: NUAN) , maker of the popular "Dragon NaturallySpeaking" speech-to-text software, jumped more than 10% in early Thursday trading after the company reported fiscal Q3 2018 earnings results that broadly met Wall Street's expectations.
Nuance reported the $0.27 per share in pro forma profits that it was expected to report. Sales fell just short -- $502.9 million versus analysts' expected $506 million. Its shares were still up a healthy 9.1% as of 2:15 p.m. EDT.
Shares of the Dragon NaturallySpeaking maker are on fire today. Image source: Getty Images.
That's the good news. The bad news is that Nuance really lost $0.05 per share when calculated according to generally accepted accounting principles (GAAP)-- although this was better than the $0.10 per share it lost in the year-ago quarter. Also, the sales number that missed estimates was only up 3% year over year, which isn't much of a gain for a "growth" stock in the tech industry.
Meanwhile, the strong cash flow that has been one of Nuance's few redeeming traits of late faltered in fiscal Q3. Operating cash flow shrank nearly 25% to $99.7 million. Fortunately, capital spending also declined, leaving Nuance with a respectable $86.1 million in cash profit produced in Q3.
Year to date, Nuance has generated a total of $256 million in positive free cash flow, a result far superior to its apparent $125 million accounting loss under GAAP. Run-rated over the course of the remainder of the year, Nuance appears to be on course to generate cash profits in excess of $340 million, which would value the stock at less than 15 times earnings.
A growth rate of 3% probably won't be enough to justify that price, but if Nuance can produce anything in the neighborhood of "double digit percentile growth," that just might make the stock worth a look -- and for what it's worth, S&P Global Market Intelligence estimates show Nuance growing earnings at 12% annualized over the next five years.
10 stocks we like better than Nuance Communications
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Nuance Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of August 6, 2018
Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Nuance Communications. The Motley Fool has a disclosure policy .