Nominal technology (NYSE:PAR) announced its intention to sell an additional 1.5 million shares and issue $200 million in aggregate principal amount of convertible senior notes due 2027. The notes are convertible into cash, shares or a combination of both before the close of business on April 15, 2027.
Following Monday’s news, Par Technology’s stock price was trading down 14% at 11:17 a.m. EDT Tuesday. Investors generally frown on additional stock sales. Although selling additional shares helps raise cash that can be reinvested for growth, it also dilutes the investment of existing shareholders, as it increases the total number of shares outstanding and therefore ensures that every dollar future earnings per share is worth less to investors.
The 14% sale primarily aligns with the level of dilution the new offering represents for current shareholders. In the first half of 2021, ParTech issued $160 million in common stock. That’s more than 10% of the company’s current market capitalization (the share price multiplied by the total number of shares outstanding) of $1.5 billion. The new 1.5 million shares would have a similar value based on the previous day’s closing price of $68.36.
In addition to the 1.5 million shares, the company intends to grant a 30-day option to underwriters to purchase an additional 225,000 shares up to an aggregate principal amount of $30 million.
ParTech has experienced strong growth over the past year, transforming itself into a software-as-a-service provider for restaurateurs. Revenue growth accelerated to 51% year-over-year in the second quarter from 3% in the prior year quarter. Its annualized recurring revenue from software services increased 166% year-over-year to $77 million.
Given the rapid growth that ParTech is experiencing, management intends to use the proceeds from the stock offering for debt repayment and business growth.
After today’s selloff, the stock is currently trading at a price/sell multiple of 5.3, which could be considered low for SaaS stocks. ParTech is already a leader in serving restaurants with point-of-sale solutions, so further progress in selling additional services to restaurant owners could eventually push the stock higher from current levels.
On that note, ParTech may use a portion of the offering proceeds for acquisitions. In the second quarter earnings report, CEO Savneet Singh said, “Our acquisition pipeline remains active and strong as we seek to continue to build our cloud-based unified commerce platform.”
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.