Sky Blue 11 Company Limited (HKG:1010) shares have had a really impressive month, gaining 26% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 41% over that time.
Since its price has surged higher, you could be forgiven for thinking Sky Blue 11 is a stock not worth researching with a price-to-sales ratios (or "P/S") of 2x, considering almost half the companies in Hong Kong's Semiconductor industry have P/S ratios below 1.2x. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.
How Sky Blue 11 Has Been Performing
As an illustration, revenue has deteriorated at Sky Blue 11 over the last year, which is not ideal at all. Perhaps the market believes the company can do enough to outperform the rest of the industry in the near future, which is keeping the P/S ratio high. If not, then existing shareholders may be quite nervous about the viability of the share price.
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sky Blue 11 will help you shine a light on its historical performance.
What Are Revenue Growth Metrics Telling Us About The High P/S?
There's an inherent assumption that a company should outperform the industry for P/S ratios like Sky Blue 11's to be considered reasonable.
In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 37%. That put a dampener on the good run it was having over the longer-term as its three-year revenue growth is still a noteworthy 23% in total. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.
Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 13% shows it's noticeably less attractive.
With this information, we find it concerning that Sky Blue 11 is trading at a P/S higher than the industry. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.
The Final Word
Sky Blue 11's P/S is on the rise since its shares have risen strongly. 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 examination of Sky Blue 11 revealed its poor three-year revenue trends aren't detracting from the P/S as much as we though, given they look worse than current industry expectations. When we see slower than industry revenue growth but an elevated P/S, there's considerable risk of the share price declining, sending the P/S lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these the share price as being reasonable.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Sky Blue 11 (1 makes us a bit uncomfortable) you should be aware of.
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).
Have feedback on this article? Concerned about the content?Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
Sky Blue 11公司有限(HKG:1010)股票经历了令人印象深刻的一个月,上涨了26%,之前经历了动荡的时期。不幸的是,过去一个月的涨幅无法弥补过去一年的损失,股票仍然下跌了41%。
由于价格上涨,您可能认为Sky Blue 11公司的股票不值得研究,因为其市销率(或“P/S”)为2倍,而香港半导体行业中近一半的公司的市销率低于1.2倍。但是,市销率可能因某种原因而高,需要进一步调查才能判断其是否合理。
Sky Blue 11的表现如何
举个例子,Sky Blue 11的营业收入在过去一年中恶化,这一点肯定不理想。也许市场认为该公司可以做足功夫,在不久的将来超越其他行业,这使得市销率保持较高水平。如果不是这样,那么现有股东对股价的可行性可能会非常紧张。
想了解该公司的收益、营业收入和现金流的全貌吗?我们的免费报告将帮助您了解Sky Blue 11的历史表现。