With PAR Technology Corporation (NYSE:PAR) It Looks Like You'll Get What You Pay For

When you see that almost half of the companies in the Electronic industry in the United States have price-to-sales ratios (or "P/S") below 1.7x, PAR Technology Corporation (NYSE:PAR) looks to be giving off some sell signals with its 3.5x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/S.

Check out our latest analysis for PAR Technology

How Has PAR Technology Performed Recently?

Recent times have been pleasing for PAR Technology as its revenue has risen in spite of the industry's average revenue going into reverse. Perhaps the market is expecting the company's future revenue growth to buck the trend of the industry, contributing to a higher P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Want the full picture on analyst estimates for the company? Then our free report on PAR Technology will help you uncover what's on the horizon.

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

The only time you'd be truly comfortable seeing a P/S as high as PAR Technology's is when the company's growth is on track to outshine the industry.

Retrospectively, the last year delivered a decent 12% gain to the company's revenues. This was backed up an excellent period prior to see revenue up by 97% 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 year should generate growth of 16% as estimated by the nine analysts watching the company. With the industry only predicted to deliver 6.3%, the company is positioned for a stronger revenue result.

With this information, we can see why PAR Technology is trading at such a high P/S compared to the industry. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From PAR Technology's P/S?

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.

We've established that PAR Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Electronic industry, as expected. 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.

We don't want to rain on the parade too much, but we did also find 3 warning signs for PAR Technology that you need to be mindful of.

If you're unsure about the strength of PAR Technology's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.