With A 26% Price Drop For Schrödinger, Inc. (NASDAQ:SDGR) You'll Still Get What You Pay For
Unfortunately for some shareholders, the Schrödinger, Inc. (NASDAQ:SDGR) share price has dived 26% in the last thirty days, prolonging recent pain. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 46% share price drop.
Although its price has dipped substantially, when almost half of the companies in the United States' Healthcare Services industry have price-to-sales ratios (or "P/S") below 2.2x, you may still consider Schrödinger as a stock probably not worth researching with its 3.8x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.
View our latest analysis for Schrödinger
How Schrödinger Has Been Performing
With revenue growth that's superior to most other companies of late, Schrödinger has been doing relatively well. The P/S is probably high because investors think this strong revenue performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Schrödinger.Do Revenue Forecasts Match The High P/S Ratio?
The only time you'd be truly comfortable seeing a P/S as high as Schrödinger's is when the company's growth is on track to outshine the industry.
Taking a look back first, we see that the company grew revenue by an impressive 33% last year. The latest three year period has also seen an excellent 51% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.
Looking ahead now, revenue is anticipated to climb by 16% per year during the coming three years according to the ten analysts following the company. Meanwhile, the rest of the industry is forecast to only expand by 13% per year, which is noticeably less attractive.
With this information, we can see why Schrödinger is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What Does Schrödinger's P/S Mean For Investors?
Schrödinger's P/S remain high even after its stock plunged. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
Our look into Schrödinger shows that its P/S ratio remains high on the merit of its strong future revenues. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless the analysts have really missed the mark, these strong revenue forecasts should keep the share price buoyant.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Schrödinger, and understanding should be part of your investment process.
If these risks are making you reconsider your opinion on Schrödinger, explore our interactive list of high quality stocks to get an idea of what else is out there.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.