Things have not gone swimmingly for Sharper Image (NASDAQ:SHRP) as of late. This month, management agreed to drop four of seven directors to satisfy dissident shareholder Knightspoint group, which owns about 13% of Sharper Image. The brouhaha was over plummeting sales at the company's stores.

On May 4, Sharper Image announced that total company sales for April (including sales from stores, catalogs, and the Internet) fell 23% while total store sales fell 30%. Total comparable store sales, or a comparison of same-store sales at stores open for more than one year, fell 32%. Internet sales were down 30%. For the first quarter ended April 30, total company sales fell 26% to $104 million, total store sales fell 28% to $56.8 million, and comparable sales fell 30%. Internet sales fell 26%. This was on top of a sales decrease of about 16% for all of 2005.

Skeptics have been pointing out for some time that Sharper Image was too dependent on its Ionic Breeze product; there were also weaker sales of massage chairs last year. Clearly, the company's fortunes depended on too few products, and new products have not yet offset the weakness. But with no debt to completely shipwreck the company and angry shareholders on its trail, one can reasonably expect sales to eventually stabilize, if not trend upward again.

At this point, it's very difficult to surmise where earnings will eventually shake out. Without any earnings at Sharper Image now, it's useful to look at other metrics, such as enterprise value to sales, or EV/S, to try to determine a reasonable valuation for the company. The stock has run up nearly 50% so far this year, but let's see if there is further potential upside.

Sharper Image's EV/S is about 0.24. There are no other directly similar publicly traded companies that would qualify as true competitors, such as privately held Brookstone, which, incidentally, posted a 15% decrease in first-quarter same-store sales. Since most retailers are very similar, let's take an unscientific sample of other retailers' trailing-12-month EV/S ratios:

Company EV/S (trailing 12 months)
Urban Outfitters (NASDAQ:URBN) 2.74
Pacific Sunwear (NASDAQ:PSUN) 1.10
Circuit City (NYSE:CC) 0.37
Best Buy (NYSE:BBY) 0.73
Pier One (NYSE:PIR) 0.37

As for the entire specialty retail industry, the average price-to-sales ratio is 2.71, which is a good proxy for the group. Remember that enterprise value includes debt and subtracts non-operating cash from the equation. Again, these aren't direct competitors, but the exercise provides a decent illustration of the range of ratios for retailers, starting with faster-growing Urban Outfitters, middle-of-the-road Pacific Sunwear, struggling Pier One, electronics giant Best Buy, and Circuit City, which is also in the midst of a turnaround.

Given the lack of true comparisons and uncertainty as to when sales may stop falling, then stabilize and eventually grow again, it's difficult to pinpoint where Sharper Image should trade in terms of EV/S. But taking lowly Pier One as an example, based on current trailing sales for Sharper Image, for its EV/S to increase from 0.24 to 0.37 implies a 54% upside from current levels. And just think of the stock potential for the multiple to return anywhere near the industry average.

Sharper Image seems like an interesting value play, but only if you have confidence in the new directors and management's ability to stem the current sales slide. Upcoming first-quarter earnings will shed more light on the subject.

Pacific Sunwear and Best Buy are Motley Fool Stock Advisor recommendations. To see why they made Tom and David Gardner's list of favorite stocks, try it free for 30 days.

Fool contributor Ryan Fuhrmann has no financial interest in any shares mentioned. Feel free to email him with feedback or to discuss the company further.