Tempus AI, Inc. (NASDAQ:TEM) Looks Just Right With A 28% Price Jump

Tempus AI, Inc. (NASDAQ:TEM) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 52%.

After such a large jump in price, when almost half of the companies in the United States' Life Sciences industry have price-to-sales ratios (or "P/S") below 3.5x, you may consider Tempus AI as a stock not worth researching with its 13.1x 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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View 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.

Want the full picture on analyst estimates for the company? Then our free report on Tempus AI will help you uncover what's on the horizon.

Is There Enough Revenue Growth Forecasted For Tempus AI?

In order to justify its P/S ratio, Tempus AI would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 60%. Pleasingly, revenue has also lifted 225% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 30% per year as estimated by the twelve analysts watching the company. That's shaping up to be materially higher than the 6.8% per annum growth forecast for the broader industry.

With this in mind, it's not hard to understand why Tempus AI's P/S is high relative to its industry peers. 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. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Tempus AI's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Tempus AI that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.