Max Grigoryev
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Max Grigoryev in Fundamentality,

Par Technology: Hospitality / Retail management systems

Par Technology primarily provides technology solutions to businesses and organizations in the hospitality industry. Par Technology's stock grew up 5.34% yesterday which seems to be a significant move for such a low-cap company.

We can see that this stock had an increased trading volume since November 5. The reason for that was the Q3 results announcement. What was so attracting in the company's press release? Unfortunately, the company provided very limited information, so for the detailed data we need to wait until the company issues the 10Q report. By now, we can undeline the following:

  • Revenue increase: +10.1% in comparison with Q3 2014 and +8.6% in year-to-date revenue for the periods ended September 2014 and September 2015;
  • Net income growth: more than 80% increase in year-to-date income for the periods ended September 2014 ($1.1M) and September 2015 ($2M).

The capitalization of the company is really small, slightly above $100M. As soon as we do not have enough information about Par Technologies and its Q3 results, I would like to compare the company with its competitors. For the purpose of comparable analysis I chose the following companies:

  • Agilysys - management systems for hospitality sector
  • NCR Corporation that provides solutions and services that enable businesses to connect, interact, and transact with their customers
  • and Vectron Systems that manufactures, sells, and installs point of sale (POS) systems and communication software for the networking of branch shops

I think that these companies have a similar business as Par Technologies. Of course, NCR is the largest company from that list, but it is still a competitor. So an interesting fact is in multiples:

As we can see, TEV/Total revenue is in the range between 1.5x to 1.9x. Par Technology has 0.5x which is more than three times lower than the market average. When I saw that I thought that this is a common situation when the small company is hugely under- or overvalued. However, TEV/EBITDA and TEV/EBIT multiple brought some doubts about undervaluation of Par Technology. As you can see the average of that multiples are around 21.5x (TEV/EBITDA) and around 50x (TEV/EBIT). Par Technology has 36.4x TEV/EBITDA multiple and 213.6x TEV/EBIT multiple. So we can see that the company has a multidirectional trend in terms of the multiples. 

Par Technology business is less marginal than the competitors have, however most likely the company is going to improve its margins this year significantly. 

As for me, Par Technology is very interesting stock, because the company is growing, the margins are growing, however it's too small at the moment. There are several other private companies that can compete with Par Technology. One of them that I like most is Revel Systems - the company integrated all the PoS software to the iPad so that retailers can use iPads instead of classic PoS. 

What do you think about the whole industry and Par Technology?