Over the past six months, PAR Technology’s stock price fell to $67.99. Shareholders have lost 6.1% of their capital, which is disappointing considering the S&P 500 has climbed by 5.8%. This might have investors contemplating their next move.

Is now the time to buy PAR Technology, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is PAR Technology Not Exciting?

Even though the stock has become cheaper, we're sitting this one out for now. Here are three reasons why there are better opportunities than PAR and a stock we'd rather own.

1. Shrinking Adjusted Operating Margin

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Looking at the trend in its profitability, PAR Technology’s adjusted operating margin decreased by 6.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. PAR Technology’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers. Its adjusted operating margin for the trailing 12 months was negative 17.7%.

2. Cash Burn Ignites Concerns

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

PAR Technology’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 13.3%, meaning it lit $13.26 of cash on fire for every $100 in revenue.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

PAR Technology burned through $25.87 million of cash over the last year, and its $400.1 million of debt exceeds the $92.18 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the PAR Technology’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of PAR Technology until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

PAR Technology isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 257.7× forward P/E (or $67.99 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward the Amazon and PayPal of Latin America.

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