WEBULL

Investors ignore increasing losses at Cerence (NASDAQ:CRNC) as stock jumps 15% this past week

Simply Wall St · 06/27 10:49

When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right stock, you can make a lot more than 100%. Take, for example Cerence Inc. (NASDAQ:CRNC). Its share price is already up an impressive 254% in the last twelve months. On top of that, the share price is up 23% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 10% in 90 days). Unfortunately the longer term returns are not so good, with the stock falling 61% in the last three years.

The past week has proven to be lucrative for Cerence investors, so let's see if fundamentals drove the company's one-year performance.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

During the last year, Cerence actually saw its earnings per share drop 15%. This was, in part, due to extraordinary items impacting earning in the last twelve months.

Given the share price gain, we doubt the market is measuring progress with EPS. Therefore, it seems likely that investors are putting more weight on metrics other than EPS, at the moment.

Cerence's revenue actually dropped 27% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NasdaqGS:CRNC Earnings and Revenue Growth June 27th 2025

Balance sheet strength is crucial. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

A Different Perspective

We're pleased to report that Cerence shareholders have received a total shareholder return of 254% over one year. Notably the five-year annualised TSR loss of 12% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 2 warning signs for Cerence you should be aware of.

For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.