Nuance (NASDAQ:NUAN) is a cash-flow compounder with strong fundamentals and moat in the healthcare and enterprise segments. At present, Nuance is a ~$2 billion-a-year business with a consistent double-digit FCF (free cash flow) margin. While growth has slowed down to a single digit in recent years, the turnaround that involved a spin-off of its automotive business Cerence (NASDAQ:CRNC) has been successful. In recent times, growth has reaccelerated to a double-digit zone. Moreover, the company also has a $500 million share repurchase program with ~86% of it yet to be exercised.

When we covered the stock last year, Nuance just recently completed the Cerence spin-off. At the time, we believed that the spin-off would allow Nuance to be laser-focused in growing its conversational AI business in the healthcare and enterprise segments. Since then, our thesis has seemed to be valid, as the solid 30%-40% ARR growth in the cloud healthcare business has remained consistent. Since last October, when we first covered the stock, the shares price has been up by over 45%. At ~$22 today, the price has almost retraced to its YTD-high of ~$23 in February 2020.

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