After Leaping 29% Tempus AI, Inc. (NASDAQ:TEM) Shares Are Not Flying Under The Radar

Despite an already strong run, Tempus AI, Inc. (NASDAQ:TEM) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 114% in the last year.

After such a large jump in price, given around half the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.7x, you may consider Tempus AI as a stock to avoid entirely with its 18.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out our latest analysis for Tempus AI

How Has Tempus AI Performed Recently?

Tempus AI certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. If not, then existing shareholders might be a little nervous about the viability of the share price.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Tempus AI.

Is There Enough Revenue Growth Forecasted For Tempus AI?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Tempus AI's to be considered reasonable.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. The latest three year period has also seen an excellent 225% overall rise in revenue, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 31% each year during the coming three years according to the analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 7.1% per annum, which is noticeably less attractive.

With this information, we can see why Tempus AI is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What Does Tempus AI's P/S Mean For Investors?

Shares in Tempus AI have seen a strong upwards swing lately, which has really helped boost its P/S figure. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Tempus AI's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Tempus AI you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.