SoundHound (NASDAQ: SOUN) stock price has suffered a harsh reversal in the past few days as profit-taking intensified. The stock crashed to $6.68 on Thursday, 35% below its highest level this month. This means that it has moved into a deep bear market.
Profit-taking intensifiesSoundHound is a technology company that provides artificial intelligence solutions to companies in industries like automobiles, restaurants, and aviation. The firm’s solutions target an industry with a large total addressable market of over $160 billion.
SoundHound stock came into the spotlight a few weeks ago after it received an investment from Nvidia, the poster child of artificial intelligence (AI). As such, investors believe that the company has substantial growth prospects in the future.
The most recent results revealed that the company is growing at a fast pace. Its revenue rose by 80% in the fourth quarter to $17.1 million. Its full-year revenue rose to $45.9 million, helped by the automotive industry.
SoundHound has also improved its margins substantially. Gross margins rose by 600 basis points to 77.2% while its adjusted EBITDA came in at $3.7 million. The company ended the quarter with $200 million in cash and short-term investments.
The biggest challenge for SoundHound stock is that it is significantly overvalued since it has a market cap of over $2.45 billion. Analysts expect that its revenue will be $69.4 million and $102 million in 2024 and 2025, respectively.
This means that the company is trading at a forward two-year PE multiple of over 23, which is significantly higher than other companies. Worse, the company has a few years before it turns a profit. It is expected to lose 30 cents per share this year and 21 cents in 2025.
Therefore, the company is priced for perfection, meaning that it needs to grow its revenue and narrow its losses substantially.
SoundHound stock price forecast
Turning to the daily chart above, we see that the SOUN share price crashed by more than 15% in Thursday’s regular session. It then plunged by over 4.3% in the post-market session. The stock is now nearing the important support at $5.10, its highest point on June 9th last year.
It remains sharply higher than the 100-day moving average while the two lines of the Percentage Price Oscillator (PPO) have formed a bearish crossover. If this happens, the stock will likely continue falling as sellers target the support at $5.11.
This price action is known as a break and retest pattern, which is a sign of a bullish continuation. The stock will likely rebound if it retests this support level.
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