Wall Street analysts make their living by taking a close look at companies’ financials and offering informed advice on their stocks. As part of this advice, they commonly set one-year price targets for stocks to give investors an idea of where the stock’s price could be heading. These targets can range widely from analyst to analyst and should be looked on as educated guesses.
Any one guess is subject to error, but if multiple analysts are all guessing similarly, the average can be useful as part of a broader analysis for or against a stock. For SoundHound AI (SOUN +4.96%), a survey of 16 analysts put the low share price target at $8, while the high was $20. On average, it’s $14, indicating over 56% upside from today’s stock price.
A 56% gain in one year is impressive, and if that pans out, SoundHound AI will be a top performer in the coming year. But is this target realistic? Let’s take a look.
Image source: Getty Images.
SoundHound AI has major potential
SoundHound AI is a rare, pure-play artificial intelligence (AI) investment that looks promising. Its technology incorporates audio recognition technology with AI, which opens up a huge market. Basically, anywhere a human normally talks to another human for service is a potential for expansion, and it has already conquered one sector. SoundHound AI has a major foothold in the restaurant industry. While that’s not a massive use case, and the number of requests at a drive-thru window is normally limited to the restaurant’s menu, it’s a solid starting point.
Today’s Change
(4.96%) $0.42
Current Price
$8.98
Key Data Points
Market Cap
$3.9B
Day’s Range
$8.61 – $9.21
52wk Range
$5.83 – $22.17
Volume
1.2M
Avg Vol
27.6M
Gross Margin
31.27%
If SoundHound AI can expand to other areas like insurance, finance, and healthcare, it could become a major player in multiple industries. It has already signed several customers in these industries, and the next few years should tell the success of these endeavors.
In the meantime, SoundHound AI is putting up solid 52% year-over-year revenue growth. While it’s still a long way from profitability, that shouldn’t come as a surprise given that SoundHound AI is in a growth phase.
As for valuation, SoundHound AI no longer has a massive premium attached to it.
Data by YCharts.
A little over 18 times sales is fairly cheap for a company with incredible prospects and a strong growth rate like SoundHound AI. Normally, I’d expect to see a stock like this trading in the 30 times sales range, which would nearly account for the 56% gain in share price that Wall Street projects.
I think if SoundHound AI can beat growth expectations and continue to expand into some of the major opportunities ahead, it will be a solid stock to own and can easily deliver the growth that investors are looking for. However, if another company comes along and tries to steal market share from SoundHound AI, don’t be surprised to see the stock take a major hit.
