Nuance Communications: Apple Supplier Offering Great Entry Point After Sell-Off

| About: Nuance Communications, (NUAN)

It is getting harder to find value plays after six weeks of continuous gains in the market to start 2013. One stock I took a small position in today is Nuance Communications (NASDAQ:NUAN). The seller of voice recognition software (Think Apple's Siri) is down more than 20% since Friday when it reported earnings that missed estimates by a penny a share. Quarterly revenue came in at $492mm, barely beating consensus estimates of $490mm. What initiated the sell-off, was that the company cut its fiscal 2013 sales forecast to $2.15 billion to $2.2 billion, down from a November projection of $2.17 billion to $2.22 billion. The stock was already underperforming the market over the last six months on concerns that Apple (NASDAQ:AAPL) iPhone growth was slowing. Although a disappointing report, the company is still growing rapidly and long term investors should be rewarded by buying shares at these levels.

Nuance Communications provides voice and language solutions for businesses and consumers worldwide.

6 reasons NUAN is providing a great long term entry point at under $20 a share:

  1. The company's customer base is well-diversified with no client accounting for more than 10% of revenues, including Apple . It also supplies several smart phone manufacturers, not just the giant from Cupertino. In addition, Healthcare sales are growing faster than mobile revenue and account for a far greater amount of total sales than mobile.
  2. Although quarterly revenues were disappointing, the company still grew sales by over 25% Y/Y. The stock has a five year projected PEG of under 1 (.66).
  3. The company has grown revenues at an approximate 17% CAGR over the past five years. Even with the reduced guidance, sales should grow better than 20% in FY2013.
  4. The stock is selling at the very bottom of its five year valuation range based on P/E and P/CF.
  5. Insiders have sold less than 1% of their total shares over the last six months and the stock sells for around 11x forward earnings, a discount to its five year average (13.8).
  6. The stock is selling at technical support levels that have held consistently over the last year (See Chart).

Disclosure: I am long AAPL, NUAN. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.