Possibilities for Options Traders in the Internet of Everything (Part 2): Nuance Communications Inc

Yesterday, we started an examination of the possibilities inherent in the stocks of companies taking the first leap into the megatrend called the Internet of Everything. I explored the relationship between tech stocks, their options and this huge emerging megatrend. Yesterday’s piece focused on the stock and options of Skyworks solution, a producer of analog semiconductors.

Today, we continue with the options of players in the Internet of Everything landscape as we explore the possibilities inherent in Nuance Communications Inc. (NASDAQ:NUAN). Nuance Communications, a $5.4B company is a provider of voice and language solutions for businesses and consumers globally. The Company’s solutions are used in healthcare, mobile, consumer, enterprise customer service, and imaging markets. The Company offers accuracy, natural language understanding capability, domain knowledge and implementation capabilities.

In simple terms, Nuance Communications is behind voice control technology such as Siri used in Apple’s (AAPL) iPhones, Voice control on Google (GOOG) Now and Voice control on Blackberry’s (BBRY) BB10 devices.

Link to the Internet of Everything

Voice control is an important feature that must be developed to the highest levels for the Internet of Everything to live up to the lofty expectations of its proponents. When the Internet of Everything is fully developed, people will depend on voice controls to carry out tasks remotely via their smartphones or tablets. Nonetheless, Apple’s Siri “a personal assistant” (powered by Nuance) seems to be the only voice control software that has reached a fraction of the possibilities latent in voice control.

Surges in Recent Times

The fact that Nuance is practically the only company making headway in the voice control industry has provided the company a first mover advantage. The stock chart below shows how the share price of Nuance Communication has gained in the last one month.

Nuance Stock Chart

You can see that the stock has spiked by 14.2% from $15.06 to $17.20. The recent gain in share price has been linked to strong second quarter results, which points to an improving business environment for the company.

Highlights of Second Quarter Results

  • GAAP Revenue was $475.7M compared to $451.0M to mark a 5.8% increase
  • Non-GAAP revenue was $490M compared to $484M in the same quarter last year
  • The company reported earnings per share of $0.28 to beat analyst’s expectations of $0.23 per share.
  • Nuance Reported bookings of $638.0M to mark a 43.45 increase over the bookings of $445.1M in the same quarter last year

Upside Potential Ahead

One of the upsides I can see in the immediate future for Nuance Communications is seen in the significant increase that was recorded in bookings volume. This upside potential is more evident in the company’s Book-to-Bill ratio, which currently stands at 1.34. A Book-to-Bill ratio above 1 suggests that the company received more orders than it billed; hence, we can look forward to increased revenue in the coming quarters.

How to Trade NUAN Options

Nuance has not had it very good in the last one year; hence, the share price has suffered with the stock trading 16.9% below its 52-Week high. However, the quality of the second quarter results, a new alliance with Oracle and the low share price will make the stock attractive for long-term investors. More so, these possibilities could set up Nuance Communications as an acquisition target. Hence, I recommend the NUAN Jan 2015 20.000 call (NUAN150117C00020000).

— Daily Option Alerts

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