Sell Cerence (CRNC)
Despite what the broad market indices say, it’s a gross day for the market, and for software stocks in particular. This had been an interesting group in recent months. We’ve seen several rocket to unbelievable heights, while others have continued to falter. It doesn’t take a lot of imagination to foresee a scenario where there is some mean reversion here (i.e. the strongest ones come down, weakest ones pop back up).
At the same time, it’s a holiday week and they are notoriously funky so the next few days could just be a mess that gets washed away in December.
Another thought is that today’s action reeks of some market inefficiencies. Some of these moves are of such a magnitude that it makes me wonder if some fund has taken a major hit or there is some other type of forced selling. Keep your eyes open for headlines to that effect.
In any event, we’re going to respect the action and take profits with one stock that is taking it on the chin after reporting Q4 fiscal 2021 results.
Cerence (CRNC) actually reported a decent Q4. Revenue of $98.1 surpassed expectations of $97.9 million and adjusted EPS of $0.66 beat expectations of $0.57. The issue is forward guidance. As we know Cerence is having some challenges (along with many others in the auto industry) with the chip shortage We expected this to continue but management’s initial fiscal 2022 guidance of $400 million to $425 million came up shorter than investors are willing to tolerate given consensus stood at $441.5 million. While there is likely some conservatism baked in the bottom line is it’s not a great way to kick off the year.
With shares down 20% mid-day my hunch is the selling is overdone by about 10%. We could easily see a bounce after a few days. At the same time, CRNCE is getting close to a major support zone in the 80 to 82 area and I’m not anxious to find out what happens if that gets breached. The stock has been moving sideways for most of the last year and I hate to wave good-bye near the bottom of that trading range.
But we still have a 70%+ gain to walk away with over a 13-month time frame and that’s not to bad. SELL