PAR Technology Corporation (NYSE:PAR) shareholders might be concerned after seeing the share price drop 15% in the last quarter. But that doesn't undermine the fantastic longer term performance (measured over five years). To be precise, the stock price is 311% higher than it was five years ago, a wonderful performance by any measure. So it might be that some shareholders are taking profits after good performance. The most important thing for savvy investors to consider is whether the underlying business can justify the share price gain. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 45% drop, in the last year.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
PAR Technology wasn't profitable in the last twelve months, it is unlikely we'll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. Some companies are willing to postpone profitability to grow revenue faster, but in that case one does expect good top-line growth.
In the last 5 years PAR Technology saw its revenue grow at 2.7% per year. That's not a very high growth rate considering the bottom line. Therefore, we're a little surprised to see the share price gain has been so strong, at 33% per year, compound, over the period. We'll tip our hats to that, any day, but the top-line growth isn't particularly impressive when you compare it to other pre-profit companies. Having said that, a closer look at the numbers might surface good reasons to believe that profits will gush in the future.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
We're pleased to report that the CEO is remunerated more modestly than most CEOs at similarly capitalized companies. But while CEO remuneration is always worth checking, the really important question is whether the company can grow earnings going forward. If you are thinking of buying or selling PAR Technology stock, you should check out this free report showing analyst profit forecasts.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between PAR Technology's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. PAR Technology hasn't been paying dividends, but its TSR of 316% exceeds its share price return of 311%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We regret to report that PAR Technology shareholders are down 45% for the year. Unfortunately, that's worse than the broader market decline of 12%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Longer term investors wouldn't be so upset, since they would have made 33%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand PAR Technology better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for PAR Technology you should be aware of.
Of course PAR Technology may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.