What happened Shares of Nuance Communications (NASDAQ: NUAN), maker of the popular Dragon Naturally Speaking family of voice-to-text (and text-to-voice) software products, are surging, up 14.3% in Thursday-morning trading circa 11:15 a.m. EST. These gains are coming after Nuance announced a modest earnings "beat" in its earnings report last night -- and despite Nuance's warning of an even bigger earnings miss in the coming year. So what Expected to report pro forma profits of only $0.16 per share on sales of $345.7 million in its fiscal fourth quarter 2020, Nuance actually reported adjusted profits of $0.18 on sales of $352.9 million. That's the good news. Now here's the bad: Sales may have exceeded expectations, but they were nonetheless down 9% year over year. Operating profit margins on those sales fell by more than half, landing at just 3.7%, and while the company "beat" earnings expectations on a pro forma basis, its actual results as calculated according to generally accepted accounting principles (GAAP) were an $0.08-PER-SHARE loss -- versus $0.01 per share in profit in last year's Q4. Image source: Getty Images. Now what It gets worse. Guiding for what to expect in fiscal 2021, currently underway, Nuance told investors on its conference call -- but not in its earnings report proper -- that it will earn only $0.71 to $0.77 (and again, only https://twitter.com/themotleyfool/status/1126323721021677569!function(d,s,id){var js,fjs=d.getElementsByTagName(s)[0],p=/^http:/.test(d.location)?'http':'https';if(!d.getElementById(id)){js=d.createElement(s);js.id=id;js.src=p+"://platform.twitter.com/widgets.js";fjs.parentNode.insertBefore(js,fjs);}}(document,"script","twitter-wjs");) versus analyst forecasts of $0.87. Sales, too, look likely to fall below estimates, with Nuance's forecast for no more than $1.37 billion in 2021 revenue likely to fall 10% short of the consensus estimate on Wall Street. One final note: Free cash flow at the software company came in at a respectable $65.1 million in real cash profit generated in the year's fourth quarter and $193.3 million generated for the year. Like all the other numbers, however, these tallies were worse than last year's -- and they leave the stock trading at a nosebleed valuation of 57 times trailing FCF and 44 times even the most optimistic estimates for next year's FCF as well. Sad to say, I fear investors who are buying up Nuance stock on this report are making a serious mistake. 10 stocks we like better than Nuance CommunicationsWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Nuance Communications wasn't one of them! That's right -- they think these 10 stocks are even better buys. See the 10 stocks *Stock Advisor returns as of October 20, 2020 Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.Source