Following a legendary investor into a stock can be a compelling proposition, but should investors actually do it? Recently, Carl Icahn has been in the news with huge gains from positions in Apple Inc. (NASDAQ:AAPL), Netflix, Inc. (NASDAQ:NFLX), and Herbalife Ltd. (NYSE:HLF) to name a few. One rarely mentioned position is the one that Icahn has been accumulating in Nuance Communications Inc. (NASDAQ:NUAN) on each drop of the stock.
While Icahn has been very successful with numerous positions, the biggest risk for somebody following his moves or any other legendary investor is that they can exit a position and cause the stock to crash before the small investor even knows what happened. Another major concern is chasing a position after somebody of the stature of Icahn files for a greater than 5% holding. The stock typically surges on the initial news flow, but it typically falters in the following months absent any material news at the company. If an investor can purchase shares for a lower price, the stock clearly has more appeal. Let's review to see if Nuance offers such a situation.
Accumulated position Icahn has made several distinct moves to acquire shares in Nuance starting back in April. The position size is now at 16.9% of the outstanding shares. The news is encouraging to long-term investors, especially after Icahn made a substantial purchase after the recent weak earnings report in August. In total, Icahn owns 52,437,750 shares acquired via numerous investment partnerships and funds for $994.9 million according to this latest filing. Based on those numbers, the average purchase price would be right around $19.
The purpose of the latest transaction is listed that a belief exists that the shares are undervalued. The filing also shows an interest in Icahn adding persons to the Board of Directors of Nuance.
Nuance prospects The maker of speech recognition technology continues to struggle with a shift from perpetual licenses toward subscriptions or recurring revenue. While the company is seen as a leader in the mobile speech recognition space, it is due to face more competition in the future with many of the tech titans making a move into the sector. Nuance has promising prospects, but the biggest frustration by investors is the general lack of a corporate strategy and the never-ending mergers. It is really difficult to determine if the company is a health care transcription business, a mobile business sold to carriers, or a virtual assistant for enterprises. All these businesses might work together using a basic core speech recognition technology, but up to now the company has been unable to make these different units gel.
Reading the supplemental data for the earnings release, one can only get excited over the potential for natural-language products in the medical records field, mobile communications, or virtual assistants. The company reported some interesting trends, including the 80% increase in cloud transactions during its third quarter and a surge in bookings for the Nina on-demand, virtual assistant. In total, the on-demand bookings increased 11% year-over-year to $2,1 billion. The disappointing part was the need to let mobile revenue decline in order to hold firm on pricing.
The company has numerous catalysts to drive growth plus the ability to generate positive operating cash flow that amounted to over $85 million in the last quarter.