Sky Blue 11 Company Limited (HKG:1010) shareholders that were waiting for something to happen have been dealt a blow with a 33% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 60% share price decline.

In spite of the heavy fall in price, it's still not a stretch to say that Sky Blue 11's price-to-sales (or "P/S") ratio of 1.3x right now seems quite "middle-of-the-road" compared to the Semiconductor industry in Hong Kong, where the median P/S ratio is around 1x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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 investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Is There Some Revenue Growth Forecasted For Sky Blue 11?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Sky Blue 11's to be considered reasonable.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 37%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 23% overall rise in revenue. Although it's been a bumpy ride, it's still fair to say the revenue growth recently has been mostly respectable for the company.

This is in contrast to the rest of the industry, which is expected to grow by 17% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Sky Blue 11 is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

What Does Sky Blue 11's P/S Mean For Investors?

With its share price dropping off a cliff, the P/S for Sky Blue 11 looks to be in line with the rest of the Semiconductor industry. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Sky Blue 11's average P/S is a bit surprising since its recent three-year growth is lower than the wider industry forecast. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's hard to accept the current share price as fair value.

Plus, you should also learn about these 4 warning signs we've spotted with Sky Blue 11 (including 2 which are a bit unpleasant).

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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