SoundHound AI, Inc. (SOUN) Is Catching Investor Attention: Here’s What You Need to Know

SoundHound AI, Inc. (SOUN) has been one of the most searched stocks on Zacks.com lately, so you might want to look at some facts that could influence the stock’s performance in the near term.

Shares of the company have declined 14% over the past month, compared to a +6.2% move for the Zacks S&P 500 Composite Index. The Zacks Computers – IT Services sector, which includes SoundHound AI, has gained 8.6% over the period. The key question now is: where might the stock be headed in the near term?

Although media reports or rumors about a significant change in a company’s business outlook usually cause its stock to trend and lead to an immediate price change, there are still some fundamental factors that ultimately determine the buy and hold decision.

Earnings Estimates Revised

At Zacks, we prioritize evaluating changes in a company’s future earnings projections. That’s because we believe the present value of its future earnings streams is what determines the fair value of its stock.

We essentially look at how sell-side analysts covering the stock revise their earnings estimates to reflect the impact of recent business trends. And if earnings estimates rise for a company, the fair value of its stock rises. A fair value that is higher than the current market price increases investor interest in buying the stock, which leads to a rise in its price. This is why empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

SoundHound AI is expected to report a loss of $0.08 per share for the current quarter, which represents a change of +11.1% from the prior year. Over the past 30 days, the Zacks Consensus Estimate has changed by -27.8%.

For the current fiscal year, the consensus earnings estimate of -$0.36 indicates a change of +5.3% from the prior year. Over the past 30 days, this estimate has changed by -19.2%.

For the next fiscal year, the consensus earnings estimate of -$0.21 indicates a change of +41.7% from what SoundHound AI was expected to report a year ago. Over the past month, the estimate has changed by +13.7%.

With an impressive outside-audited track record, our proprietary stock rating tool, the Zacks Rank, is a more conclusive indicator of a stock’s near-term price performance as it effectively harnesses the power of earnings estimate revisions. The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings estimates, have resulted in a Zacks Rank #3 (Hold) for SoundHound AI.

The chart below shows the evolution of the company’s 12-month consensus EPS estimate:

EPS over 12 months

Projected revenue growth

While earnings growth is arguably the best indicator of a company’s financial health, nothing as such happens if a company is unable to grow its revenue. After all, it is nearly impossible for a company to grow its profits over a sustained period of time without growing its revenue. Therefore, it is important to know a company’s revenue growth potential.

For SoundHound AI, the consensus sales estimate for the current quarter of $23.68 million indicates a year-over-year change of +78.5%. For the current and next fiscal years, the estimates of $82.59 million and $151.87 million indicate changes of +80.1% and +83.9%, respectively.

Latest reported results and surprise history

SoundHound AI reported revenue of $13.46 million in the latest quarter, representing a year-over-year change of +53.8%. EPS of -$0.11 for the same period compares to -$0.10 a year ago.

Compared to the Zacks Consensus Estimate of $13.01 million, reported revenues represent a surprise of +3.47%. EPS surprise stands at -22.22%.

Over the past four quarters, the company has topped EPS estimates just once. It has topped consensus revenue estimates three times during that period.

Assessment

No investment decision can be effective without considering the valuation of a stock. Whether the current price of a stock accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is a key factor in determining its future performance.

Comparing the current value of a company’s valuation multiples, such as its price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, and price-to-cash flow (P/CF) ratio, to its own historical values ​​helps determine whether its stock is fairly valued, overvalued, or undervalued, while comparing the company to its peers on these metrics gives a good idea of ​​whether its stock price is reasonable.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and unconventional valuation metrics to grade stocks from A to F (an A is better than a B; a B is better than a C; and so on), is very useful in identifying whether a stock is overvalued, fairly valued, or temporarily undervalued.

SoundHound AI is rated F on this front, indicating that it is trading at a premium to its peers. Click here to see the values ​​of some of the valuation metrics that led to this rating.

Conclusion

The facts discussed here and many other information on Zacks.com could help determine whether or not it is worth paying attention to the market buzz surrounding SoundHound AI. However, its Zacks Rank #3 suggests that it could perform in line with the broader market in the near term.

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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.