The Price Is Right For SoundHound AI, Inc. (NASDAQ:SOUN) Even After Diving 37%

SoundHound AI, Inc. (NASDAQ:SOUN) shares have retraced a considerable 37% in the last month, reversing a fair amount of their solid recent performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 40%, which is great even in a bull market.

Although its price has dipped substantially, SoundHound AI may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 48.9x, since almost half of all companies in the Software industry in the United States have P/S ratios under 5.2x and even P/S lower than 2x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for SoundHound AI

What Does SoundHound AI's Recent Performance Look Like?

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. However, if this isn't the case, investors might get caught out paying too much for the stock.

Keen to find out how analysts think SoundHound AI's future stacks up against the industry? In that case, our free report is a great place to start.

How Is SoundHound AI's Revenue Growth Trending?

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

Retrospectively, the last year delivered an exceptional 76% gain to the company's top line. The strong recent performance means it was also able to grow revenue by 232% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Shifting to the future, estimates from the seven analysts covering the company suggest revenue should grow by 115% over the next year. With the industry only predicted to deliver 17%, the company is positioned for a stronger revenue result.

With this information, we can see why SoundHound 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 SoundHound AI's P/S Mean For Investors?

SoundHound AI's shares may have suffered, but its P/S remains high. 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.

As we suspected, our examination of SoundHound 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with SoundHound AI (at least 2 which are potentially serious), and understanding these should be part of your investment process.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.