SkyWest, Inc. (NASDAQ:SKYW) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

SkyWest, Inc. (NASDAQ:SKYW) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 31%, which is great even in a bull market.

Although its price has dipped substantially, you could still be forgiven for feeling indifferent about SkyWest's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Airlines industry in the United States is also close to 0.6x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/S.

See our latest analysis for SkyWest

How SkyWest Has Been Performing

Recent times have been advantageous for SkyWest as its revenues have been rising faster than most other companies. It might be that many expect the strong revenue performance to wane, which has kept the P/S ratio from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Keen to find out how analysts think SkyWest's future stacks up against the industry? In that case, our free report is a great place to start.

How Is SkyWest's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like SkyWest's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 20% last year. The strong recent performance means it was also able to grow revenue by 30% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 8.0% each year as estimated by the five analysts watching the company. That's shaping up to be materially lower than the 324% each year growth forecast for the broader industry.

With this information, we find it interesting that SkyWest is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Final Word

SkyWest's plummeting stock price has brought its P/S back to a similar region as the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Given that SkyWest's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. Circumstances like this present a risk to current and prospective investors who may see share prices fall if the low revenue growth impacts the sentiment.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for SkyWest that 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).

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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.