Why This Stock Is A Buy On It’s Pullback
In the last month, SoundHound AI’s stock (SOUN) witnessed an impressive surge of 254%, riding high on Nvidia’s strategic investment. However, the celebratory mood came to a halt after the release of the company’s fourth-quarter 2023 results on Feb. 29. This article aims to explore the factors behind this pullback and scrutinise whether it presents a prudent buying opportunity for discerning investors.
The Rise and Pullback
SoundHound AI, a frontrunner in voice artificial intelligence solutions, reported a remarkable 80% year-over-year revenue growth in Q4 2023, reaching $17.1 million. Although falling slightly short of the $17.7 million consensus estimate, the company’s gross margin surged to an impressive 77%, effectively reducing the net loss to $0.07 per share.
For the full year, SoundHound AI’s revenue saw a commendable 47% increase, nearly reaching $46 million. Furthermore, the net loss dropped to $0.40 per share, showcasing the company’s potential for growth. The optimism continued as SoundHound AI projected robust revenue growth for 2024 and 2025, with forecasts ranging between $63 million and $77 million for the former and a target of at least $100 million in the latter.
The Backlog Boost:
Despite the minor Q4 setback, SoundHound AI closed 2023 with an impressive cumulative subscriptions and bookings backlog of $661 million, marking a substantial jump from previous quarters. This backlog comprises committed customer contracts and potential revenue achievable with current customers where SoundHound AI holds a leading or exclusive position.
While the recent quarterly results led to some profit-taking, it is crucial to consider SoundHound AI’s substantial bookings backlog. With $661 million in commitments, the company is well-poised to exceed its revenue targets for 2024 and 2025.
Cautionary Signals:
As of today, the relative strength indicator (RSI) of SoundHound’s share price is above 80, implying that the stock is significantly overbought by investors. The RSI measures the velocity at which market participants are driving the price of a financial instrument upwards or downwards. This may suggest that the stock is overhyped and potentially subject to a correction.
Additionally, the company’s status is marked as “Overhyped,” and a cautionary tone is sounded for a 3-month investment horizon. SoundHound AI owns an Efficiency Ratio (Sharpe Ratio) of 0.2, indicating a 0.2% return per unit of risk over the last 3 months.
Furthermore, SoundHound Risk-Adjusted Performance stands at 0.1157, with a semi-deviation of 5.02 and a Coefficient Of Variation of 592.04. This questions whether the expected returns of 2.39% are justified by the suggested risk.
While SoundHound AI presents promising growth prospects, investors are urged to exercise caution due to potential overhype and signals of significant market risk. The substantial bookings backlog may play a role in the company’s future success, but it has promising prospects. All of this should help you decide whether to invest in SoundHound
