PAR Technology Corporation (NYSE:PAR) shares have continued their recent momentum with a 31% gain in the last month alone. The last month tops off a massive increase of 103% in the last year.

Following the firm bounce in price, you could be forgiven for thinking PAR Technology is a stock to steer clear of with a price-to-sales ratios (or "P/S") of 6.4x, considering almost half the companies in the United States' Electronic industry have P/S ratios below 2.1x. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

What Does PAR Technology's Recent Performance Look Like?

PAR Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. However, if this isn't the case, investors might get caught out paying too much for the stock.

How Is PAR Technology's Revenue Growth Trending?

PAR Technology's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 49%. Pleasingly, revenue has also lifted 75% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 5.6% as estimated by the ten analysts watching the company. Meanwhile, the broader industry is forecast to expand by 9.1%, which paints a poor picture.

In light of this, it's alarming that PAR Technology's P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the negative growth outlook.

What Does PAR Technology's P/S Mean For Investors?

PAR Technology's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

For a company with revenues that are set to decline in the context of a growing industry, PAR Technology's P/S is much higher than we would've anticipated. Right now we aren't comfortable with the high P/S as the predicted future revenue decline likely to impact the positive sentiment that's propping up the P/S. At these price levels, investors should remain cautious, particularly if things don't improve.

Before you settle on your opinion, we've discovered 2 warning signs for PAR Technology that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.