Breaking down this software stock's seemingly unstoppable rally
Since September 2019, computer software concern Nuance Communications Inc. (NASDAQ:NUAN) had been steadily climbing up the charts, before the COVID-19 pandemic took its hit on the market. Nevertheless, the stock remains up roughly 94% year-to-date. That being said, now looks like an opportune time to bet on NUAN's next leg higher.
Tailwinds could come from a shift in analyst attention. NUAN's 12-month consensus price target of $34.86 is roughly a 1% discount to the stock's current perch, which may spur some price-target hikes moving forward and ultimately push NUAN even higher.
A short squeeze could create additional upside for the equity as well. Short interest spiked to a multi-year high of 16.1% in the most recent reporting period, and the 19.93 million shares sold make up about 7% of the stock's available float. At the security's average pace of trading, it would take more than a week to buy back these bearish bets; ample amounts of buying power that can hit the market and fuel an unwind.
The amount of pessimism in the options pits could also give the security a boost, should it begin to unwind. This is per NUAN's Schaeffer's put/call open interest ratio (SOIR) of 1.21, which sits in the 98th percentile of its annual range -- meaning short-term options traders have rarely been more put-biased.
What's more, options traders are pricing in relatively low volatility expectations at the moment, per the stock's Schaeffer's Volatility Index (SVI) of 37%, which sits higher than just 28% of all other annual readings. Plus, NUAN's Schaeffer's Volatility Scorecard (SVS) ranks at a high 96 out of 100, meaning the equity has tended to exceed these expectations during the past year.
Subscribers to Schaeffer's Weekend Trader options recommendation service received this NUAN commentary on Sunday night, along with a detailed options trade recommendation -- including complete entry and exit parameters. Learn more about why Weekend Trader is one of our most popular options trading services.