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Taking Stock of Cerence’s Risk Factors
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Taking Stock of Cerence’s Risk Factors

Cerence Inc. (CRNC) recently delivered better-than-estimated fourth-quarter results on both its top-line and bottom-line. The company provides artificial intelligence solutions for the transportation market globally.

The growth in revenue came from an increase in License revenue and Professional Service revenue. Notably, management noted that CRNC’s total revenue grew 17% as compared to a 9% growth for auto production during the year.

With these developments in mind, let’s have a look at what’s changed in CRNC’s key risk factors that investors should know.

Risk Factors

According to the TipRanks Risk Factors tool, CRNC’s top two risk categories are Finance & Corporate and Tech & Innovation, contributing 40% and 21% to the total 42 risks identified, respectively. In its recent annual report, the company has changed one key risk factor and removed another key risk factor, both under the Finance & Corporate risk category.

CRNC highlighted that its amended and restated certificate of incorporation designates the courts in Delaware as the sole and exclusive forum for certain types of actions and proceedings initiated by CRNC’s investors. This may limit the ability of investors to gain a favorable judicial forum in disputes against the CRNC, its directors, officers, or other personnel.

In its risk removed, CRNC pointed towards the risk to its share price as an emerging growth company. Any decision to comply with certain reduced reporting and disclosure requirements that are applicable to emerging growth companies may render CRNC shares less appealing to investors. It also makes it difficult to compare CRNC’s performance with other companies in the public domain.  (See Insiders’ Hot Stocks on TipRanks)

Against a sector average of 17%, CRNC’s Tech & innovation risk factor is at 21%.

Wall Street’s Take

On November 23, RBC Capital analyst Joseph Spak reiterated a Buy rating on the stock but decreased the price target to $95 from $110. The analyst pointed out lower-than-expected guidance and poor communication on connected services as areas of concern around the company’s growth targets.

Consensus on the Street is a Strong Buy based on 8 Buys and 1 Hold. The average Cerence price target of $122.78 implies a potential upside of 57.4% for the stock, after a 24.3% slide in share prices so far this year.

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