Amidst the volatility of the stock market, Schrodinger Inc (SDGR, Financial) recently showcased a notable daily gain of 14.09%, with a 3-month gain of 7.8%. These figures are impressive, but they only scratch the surface when it comes to evaluating the company's true worth. With an Earnings Per Share (EPS) of $0.56, investors are keen to determine if the stock is modestly undervalued as suggested by the GF Value. The following analysis delves into Schrodinger's valuation, providing an in-depth perspective for those considering an investment.
Company Introduction
Schrodinger Inc operates in the cutting-edge field of healthcare software, with a focus on transforming drug discovery across life sciences and materials science industries. Its business segments, Software and Drug Discovery, work synergistically to advance preclinical and clinical programs, both internally and through strategic collaborations. This approach has led to revenue generation from software sales and milestone payments from drug discovery partnerships. With a current stock price of $35.79 and a GF Value of $42.79, Schrodinger presents a compelling case for potential undervaluation. This juxtaposition sets the stage for a deeper exploration into the company's intrinsic value, merging financial analysis with key business insights.
Summarize GF Value
The GF Value is a proprietary metric that offers an estimate of a stock's intrinsic value, taking into account historical trading multiples, a GuruFocus adjustment factor for past performance and growth, and future business performance projections. When a stock's price hovers significantly above this value line, it could be overvalued, suggesting lower future returns. Conversely, a price well below the GF Value may indicate undervaluation and the potential for higher returns. Schrodinger, with a market cap of $2.60 billion, seems to be modestly undervalued, hinting at a favorable long-term return on investment.
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Financial Strength
Investors must consider a company's financial strength to sidestep the risk of permanent capital loss. Indicators such as the cash-to-debt ratio and interest coverage can provide insight into this aspect. Schrodinger's cash-to-debt ratio of 3.85 ranks favorably within the Healthcare Providers & Services industry, suggesting a fair financial strength with a score of 7 out of 10.
Profitability and Growth
Investing in profitable companies, especially those with a track record of consistent profitability, is typically less risky. Schrodinger's profitability, however, is ranked 3 out of 10, reflecting poor performance in this area, with an operating margin of -88.46%. On the growth front, the company's 3-year average revenue growth rate is commendable, surpassing 76.52% of its industry peers. Nevertheless, its 3-year average EBITDA growth rate is concerning, ranking lower than 91.93% of competitors within the industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) can reveal the effectiveness of its cash flow generation relative to its invested capital. Ideally, ROIC should exceed WACC. For Schrodinger, the past 12 months have seen a ROIC of -62.28, which is significantly lower than its WACC of 13.59, indicating challenges in generating adequate returns on investments.
Conclusion
Overall, Schrodinger (SDGR, Financial) stock appears modestly undervalued. The company's financial condition is fair, yet its profitability concerns warrant caution. Its growth prospects are mixed, with revenue growth outpacing many but EBITDA growth lagging behind most in the Healthcare Providers & Services industry. For a detailed review of Schrodinger's financials, interested investors can view the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
