It is doubtless a positive to see that the Schrödinger, Inc. (NASDAQ:SDGR) share price has gained some 41% in the last three months. But if you look at the last five years the returns have not been good. In fact, the share price is down 11%, which falls well short of the return you could get by buying an index fund.
On a more encouraging note the company has added US$74m to its market cap in just the last 7 days, so let's see if we can determine what's driven the five-year loss for shareholders.
Check out our latest analysis for Schrödinger
Schrödinger isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Shareholders of unprofitable companies usually desire strong revenue growth. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last half decade, Schrödinger saw its revenue increase by 19% per year. That's better than most loss-making companies. The share price drop of 2% per year over five years would be considered let down. You could say that the market has been harsh, given the top line growth. So now is probably an apt time to look closer at the stock, if you think it has potential.
You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting that the CEO is paid less than the median at similar sized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. You can see what analysts are predicting for Schrödinger in this interactive graph of future profit estimates.
A Different Perspective
Schrödinger shareholders are down 4.5% for the year, but the market itself is up 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 2% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 1 warning sign with Schrödinger , and understanding them should be part of your investment process.
Of course Schrödinger may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.
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