SoundHound AI, Inc. (NASDAQ:SOUN) shareholders have had their patience rewarded with a 28% share price jump in the last month. The annual gain comes to 290% 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 39.6x 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 4.8x and even P/S below 1.7x 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.

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. If not, then existing shareholders might be a little nervous about the viability of the share price.

What Are Revenue Growth Metrics Telling Us About The High P/S?

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 53% gain to the company's top line. The latest three year period has also seen an excellent 174% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 111% during the coming year according to the seven analysts following the company. That's shaping up to be materially higher than the 25% growth forecast for the broader industry.

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.

The Final Word

SoundHound AI's P/S has grown nicely over the last month thanks to a handy boost in the share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our look into SoundHound AI shows that its P/S ratio remains high on the merit of its strong future revenues. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 4 warning signs for SoundHound AI that we have uncovered.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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