Schrödinger (SDGR) stock is in focus after its latest quarterly earnings showed a move from a loss to a profit, and the company announced an AI-focused agreement with Bristol Myers Squibb.

The earnings swing to profit and the new Bristol Myers Squibb agreement sit alongside sharp recent moves in Schrödinger’s share price, including a 22.84% 7 day share price return and a 47.91% 90 day share price return. That stands against a relatively flat 1 year total shareholder return of 0.75% and a much weaker 3 year total shareholder return, which signals that recent momentum is building from a low base.

If this kind of AI driven drug discovery story interests you, it can be useful to see what else is moving. Take a look at the 43 healthcare AI stocks.

Schrödinger’s sharp rebound and new AI deal put the spotlight on what you are actually paying for today. After this run, does the current price still offer an attractive trade off between upside potential and risk?

Most Popular Narrative: 10.1% Undervalued

Schrödinger’s most followed narrative sees fair value at $20.88, compared with the latest close at $18.77. That gap rests on specific growth and profitability assumptions that investors may want to understand before taking a view.

Analysts are assuming Schrödinger's revenue will grow by 11.1% annually over the next 3 years.

In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 88.5x on those 2029 earnings, up from -11.4x today.

Want to see what sits behind that rich future profit multiple and steady revenue build in the Schrödinger story? The full narrative lays out the bridge from current losses to the earnings profile and valuation multiple that support this fair value, step by step, in plain numbers.

Result: Fair Value of $20.88 (UNDERVALUED)

However, there are still important watchpoints for Schrödinger, including pressure on software margins from investment shifts and the risk that milestone revenue will prove volatile or delayed.

Another View on Schrödinger’s Valuation

The fair value estimate of $20.88 for Schrödinger is built from detailed forecasts for revenue, margins and future earnings. Yet on simpler measures, the stock looks expensive. Schrödinger trades on a P/S ratio of 5.4x, compared with a peer average of 1.9x and a fair ratio of 2.5x, which implies investors are paying a high premium for each dollar of current sales. Is that a premium you are comfortable with?

Next Steps

Curious how this mixed picture around Schrödinger squares with your own view of its risks and rewards? Take a closer look at the 2 key rewards and 2 important warning signs.

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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.