The Price Is Right For Schrödinger, Inc. (NASDAQ:SDGR) Even After Diving 26%

The Schrödinger, Inc. (NASDAQ:SDGR) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. The last month has meant the stock is now only up 5.2% during the last year.

Even after such a large drop in price, when almost half of the companies in the United States' Healthcare Services industry have price-to-sales ratios (or "P/S") below 2.1x, you may still consider Schrödinger as a stock not worth researching with its 9.6x P/S ratio. 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.

See our latest analysis for Schrödinger

What Does Schrödinger's P/S Mean For Shareholders?

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. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Schrödinger.

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

The only time you'd be truly comfortable seeing a P/S as steep as Schrödinger's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. Pleasingly, revenue has also lifted 98% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Looking ahead now, revenue is anticipated to climb by 28% 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 annum, which is noticeably less attractive.

In light of this, it's understandable that Schrödinger's P/S sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Schrödinger's P/S

Schrödinger's shares may have suffered, but its P/S remains high. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

We've established that Schrödinger maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Healthcare Services industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Schrödinger (1 makes us a bit uncomfortable!) that you should be aware of before investing here.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.