PAR Technology Corporation (NYSE:PAR) Shares Slammed 25% But Getting In Cheap Might Be Difficult Regardless

Explore PAR Technology's Fair Values from the Community and select yours

PAR Technology Corporation (NYSE:PAR) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. Longer-term shareholders would now have taken a real hit with the stock declining 2.4% in the last year.

In spite of the heavy fall in price, you could still be forgiven for thinking PAR Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 5x, considering almost half the companies in the United States' Electronic industry have P/S ratios below 2.3x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

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See our latest analysis for PAR Technology

What Does PAR Technology's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, PAR Technology has been doing relatively well. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

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What Are Revenue Growth Metrics Telling Us About The High P/S?

In order to justify its P/S ratio, PAR Technology would need to produce outstanding growth that's well in excess of the industry.

Retrospectively, the last year delivered an exceptional 46% gain to the company's top line. As a result, it also grew revenue by 29% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been respectable for the company.

Turning to the outlook, the next year should generate growth of 15% as estimated by the nine analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 12%, which is noticeably less attractive.

With this information, we can see why PAR Technology is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

PAR Technology's shares may have suffered, but its P/S remains high. 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.

As we suspected, our examination of PAR Technology's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for PAR Technology you should be aware of.

If these risks are making you reconsider your opinion on PAR Technology, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.