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Why Par Technology Stock Crashed on Tuesday

By John Ballard – Sep 14, 2021 at 12:30PM

Key Points

  • ParTech intends to sell 1.5 million shares of stock and issue debt to finance further growth initiatives.
  • ParTech's transition to a software-as-a-service provider for restaurants is driving accelerating growth.
  • Following the sell-off, the stock could be an interesting play on digital service growth in the restaurant industry.

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Investors don't like the proposal to sell additional shares and dilute existing shareholders.

What happened

Par Technology (PAR 5.24%) has announced its intent to sell 1.5 million shares of additional stock and issue $200 million in aggregate principal amount of convertible senior notes due in 2027. The notes can be converted to cash, shares of Par stock, or a combination of the two prior to the close of business on April 15, 2027.

Following the news on Monday, Par Technology's stock price was trading down 14% as of 11:17 a.m. EDT on Tuesday. Investors typically frown on additional stock sales. While selling additional stock helps raise cash that can be reinvested for growth, it also dilutes existing shareholders' investment, since it increases the total shares outstanding, and therefore makes each dollar of future earnings per share worth less to investors.

A customer checking out using a digital terminal at a restaurant.

Image source: Getty Images.

So what

The 14% sell-off mostly aligns with the level of dilution that the new offering represents to current shareholders. In the first half of 2021, ParTech issued $160 million worth of common stock. That's more than 10% of the company's current market capitalization (the stock quote multiplied by total shares outstanding) of $1.5 billion. The new 1.5 million shares would be worth a similar amount based on the previous day's closing price of $68.36.

On top of the 1.5 million shares, the company intends to grant a 30-day option to underwriters to buy another 225,000 shares up to an aggregate principal amount of $30 million. 

Now what

ParTech has experienced strong growth over the last year, as it transforms into a software-as-a-service provider for restaurant operators. Revenue growth accelerated to 51% year over year in the second quarter, up from 3% in the year-ago quarter. Its annualized recurring revenue from software services grew 166% year over year to reach $77 million. 

Given the rapid growth ParTech is experiencing, management intends to use the proceeds from the stock offering for debt repayment and growth of the business. 

After the sell-off today, the stock currently trades at a price-to-sales multiple of 5.3, which might be viewed as low for SaaS stocks. ParTech is already a leader in serving restaurants with point-of-sale solutions, so further progress on selling restaurant owners additional services could eventually send the stock higher from current levels.

On that note, ParTech may use some of the proceeds from the offering for acquisitions. In the second-quarter earnings report, CEO Savneet Singh said, "Our acquisition pipeline remains active and strong as we look to continue to build out our unified commerce cloud platform."

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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