Why Nuance Communications Inc. Stock Jumped 10% in May

By Markets Fool.com

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What: Shares of voice and language tools expert Nuance Communications (NASDAQ: NUAN) rose 10.1% in May, according to S&P Capital IQ data. The company delivered positive surprises on both the top and bottom lines in its second-quarter report, driving the bulk of Nuance's monthly share price gains.

So what: Nuance beat the Street's earnings estimates by 25% and the revenue consensus by 1.4%. Efficient cost controls helped the company raise operating margins and operating cash flows, and Nuance's board of directors also refilled the waning share repurchase plan with another $500 million authorization. Using up the entire allotment at today's prices could retire 9% of Nuance's shares, boosting stock prices by a similar amount.

Now what: This stock rides a rocky roller coaster. Shares have climbed a market-beating 23% year-to-date, including the surge in May and a boost from analyst upgrades this week. But Nuance also lost 29% of its value between last June and this January, reflecting a string of soft guidance updates even though the company mostly stepped up to exceed those low expectations.

In Nuance's defense, the company took a lot of heat for changing its basic sales model. Instead of selling perpetual software licenses, Nuance now requires subscriptions. This model has become popular across the software industry in recent years and offers stable long-term revenue streams, but at the cost of sacrificing revenue in the short term.

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Most of that painful process should be behind Nuance now, so you can start evaluating its business and stock on their own merits again. From that perspective, Nuance investors are off to a great start in 2015, in large part thanks to the value spike in May.

The article Why Nuance Communications Inc. Stock Jumped 10% in May originally appeared on Fool.com.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends Apple and Nuance Communications. The Motley Fool also owns shares of Apple and Nuance Communications. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.