Market Participants Recognise SoundHound AI, Inc.'s (NASDAQ:SOUN) Revenues Pushing Shares 26% Higher

SoundHound AI, Inc. (NASDAQ:SOUN) shares have continued their recent momentum with a 26% gain in the last month alone. The annual gain comes to 207% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, SoundHound AI's price-to-sales (or "P/S") ratio of 49.9x might make it look like a strong sell right now compared to other companies in the Software industry in the United States, where around half of the companies have P/S ratios below 5.4x and even P/S below 2x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

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See our latest analysis for SoundHound AI

How SoundHound AI Has Been Performing

Recent times have been advantageous for SoundHound AI as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is SoundHound AI's Revenue Growth Trending?

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

If we review the last year of revenue growth, the company posted a terrific increase of 101%. The latest three year period has also seen an incredible overall rise in revenue, aided by its incredible short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Looking ahead now, revenue is anticipated to climb by 66% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 16%, which is noticeably less attractive.

With this in mind, it's not hard to understand why SoundHound AI's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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

SoundHound AI's P/S has grown nicely over the last month thanks to a handy boost in the share price. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our look into SoundHound AI shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for SoundHound AI that you should be aware of.

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.