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TOST Skyrockets 78% in a Year: How Should You Play the Stock?
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Key Takeaways
{\"0\":\"TOST shares jumped 78% in a year, outpacing sector gains and major index returns.\",\"1\":\"Q2 revenues rose 25% to $1.55B, with a record 8,500 net new locations added.\",\"2\":\"Management raised the 2025 fintech and subscription gross profit growth forecast to 29%.\"}
Toast, Inc. (TOST - Free Report) shares have gained 78% in the past year, outperforming the Internet Software market and the Zacks Computer & Technology sector’s growth of 43.6% and 25.4%. The S&P 500 Composite has returned 17.8% over the same time frame. TOST is one of the leading providers of software-as-a-service (SaaS) and hardware solutions focused on the restaurant market.
Price Performance
Image Source: Zacks Investment Research
However, after this rally, investors may wonder whether there’s more upside ahead or if the current price bakes in too much optimism. Let’s examine the company’s pros and cons to determine whether investors should hold the stock or exit the investment.
What’s Going on With TOST?
Efforts to expand its presence in the core U.S. SMB restaurant market, as well as drive growth across new markets, bode well. The company recently posted second-quarter results wherein revenues of $1.55 billion jumped nearly 25% and beat the Zacks Consensus Estimate by 1.1%. Annualized recurring run-rate (ARR) was up 31% to $1.9 billion.
TOST added a record 8,500 net new locations, ending the quarter with 148,000 total locations, up 24% year over year. Toast continues to grow market share in nearly every SMB market it operates in, even in large and small metro areas where penetration exceeds 30%, underscoring that its local go-to-market strategy is paying off. Management expects net adds in 2025 to top 2024’s full-year net additions.
Toast collectively surpassed 10,000 live locations across enterprise, international, and food & beverage retail segments in the second quarter and is on track to top $100 million in ARR by year-end. Wins such as Firehouse Subs highlight traction among large QSR brands. This will boost upselling and platform expansion. It also ventured into the Australia, its fourth international market after the U.K., Ireland and Canada.
Image Source: Zacks Investment Research
Focus on product innovation and newer features is expected to drive platform stickiness. It launched Toast Go 3 Handheld, which uses ToastIQ with built-in cellular connectivity, thereby making it simpler for restaurant staff to take orders, process payments and print receipts effortlessly across cellular and Wi-Fi networks. It is lighter and now has a 24-hour battery life. ToastIQ is an AI-powered intelligence engine that combines restaurant expertise, data and AI to enhance its platform.
Driven by strong results and continued momentum, TOST now expects 29% growth (earlier guided to 26%) in fintech and subscription gross profit for 2025 at the midpoint, while adjusted EBITDA is now estimated at $575 million ($550 million was the previous projection), with a 32% margin, an increase of five percentage points from 2024.
Challenges Remain for TOST
Nonetheless, heightened uncertainty prevailing over the macro environment amid escalating trade war, with tariff troubles raising fears of increased costs and dampening consumer purchasing power, remains a concern. Higher tariffs can lead to a reduction in profit for the average independent restaurant operator. The restaurant industry is still susceptible to consumer spending, labor inflation and supply chain volatility. A consumer downturn or cost pressures could reduce restaurant spend on technology. This can impact TOST’s performance, which remains heavily reliant on the restaurant industry.
Decline in Gross Payment Volume or GPV per location is another headwind, as it implies lower average transaction volumes. TOST’s overall GPV surged 23% year over year to $50 billion in the second quarter, but GPV per location declined 1% year over year.
Higher costs can weigh on profitability. In the second quarter, operating expenses, excluding bad debt and credit-related expenses, increased 18%. Sales & marketing expenses grew 28% year over year due to marketing investments across retail and international segments. Higher costs can prove a drag on margins, especially if revenue growth does not keep pace. Management cautioned that fourth-quarter margins will be lower due to the seasonality of payment volumes, plus higher tariff expenses in the second half of the year.
Image Source: Zacks Investment Research
Although Toast emphasized progress in the international, retail and enterprise verticals, the investment in these nascent areas could take time to scale and may drag on margins in the near term if costs outpace revenue contribution.
TOST needs to watch out for the competitive pressure from various small and big players who are also vying for a larger share of this lucrative market. Block (XYZ - Free Report) , Oracle (ORCL - Free Report) and Lightspeed (LSPD - Free Report) compete in varying degrees with Toast, though each company approaches the market differently.
Tech behemoth Oracle offers a wide range of products, including POS systems like Oracle Retail Xstore and Oracle MICROS Simphony POS. MICROS Simphony targets large restaurant chains, hotels, casinos and resorts. Lightspeed provides a one-stop commerce platform for merchants and serves retail, hospitality and golf businesses. LSPD offers a cloud solution that transforms and combines online and physical operations, multichannel sales and aids in expansion to new locations. It also facilitates global payments, financing and connection to supplier networks.
Block, formerly known as Square, offers financial and marketing services through its comprehensive commerce ecosystem that helps sellers to start, run and grow their businesses. Block’s Square for Restaurants POS platform competes directly with TOST’s offerings.
Lofty Valuation for TOST
TOST stock is also not so cheap, as its Value Style Score of F suggests a stretched valuation at this moment.
Image Source: Zacks Investment Research
TOST is trading at a premium with a price/book multiple of 12.07X compared with the industry’s 6.94X.
Investment Thesis for TTD Stock
Toast’s healthy revenue growth, expanding market share, and ongoing product innovation are expected to drive long-term growth. Stretched valuation and near-term headwinds from macro uncertainty, tariffs, and declining GPV per location warrant caution. Competitive pressures from both established and emerging players could also limit upside potential.
For investors already holding shares, the story remains compelling, but for new entrants, it may be wise to wait for a better entry point.
Image: Bigstock
TOST Skyrockets 78% in a Year: How Should You Play the Stock?
Key Takeaways
Toast, Inc. (TOST - Free Report) shares have gained 78% in the past year, outperforming the Internet Software market and the Zacks Computer & Technology sector’s growth of 43.6% and 25.4%. The S&P 500 Composite has returned 17.8% over the same time frame. TOST is one of the leading providers of software-as-a-service (SaaS) and hardware solutions focused on the restaurant market.
Price Performance
Image Source: Zacks Investment Research
However, after this rally, investors may wonder whether there’s more upside ahead or if the current price bakes in too much optimism. Let’s examine the company’s pros and cons to determine whether investors should hold the stock or exit the investment.
What’s Going on With TOST?
Efforts to expand its presence in the core U.S. SMB restaurant market, as well as drive growth across new markets, bode well. The company recently posted second-quarter results wherein revenues of $1.55 billion jumped nearly 25% and beat the Zacks Consensus Estimate by 1.1%. Annualized recurring run-rate (ARR) was up 31% to $1.9 billion.
TOST added a record 8,500 net new locations, ending the quarter with 148,000 total locations, up 24% year over year. Toast continues to grow market share in nearly every SMB market it operates in, even in large and small metro areas where penetration exceeds 30%, underscoring that its local go-to-market strategy is paying off. Management expects net adds in 2025 to top 2024’s full-year net additions.
Toast collectively surpassed 10,000 live locations across enterprise, international, and food & beverage retail segments in the second quarter and is on track to top $100 million in ARR by year-end. Wins such as Firehouse Subs highlight traction among large QSR brands. This will boost upselling and platform expansion. It also ventured into the Australia, its fourth international market after the U.K., Ireland and Canada.
Image Source: Zacks Investment Research
Focus on product innovation and newer features is expected to drive platform stickiness. It launched Toast Go 3 Handheld, which uses ToastIQ with built-in cellular connectivity, thereby making it simpler for restaurant staff to take orders, process payments and print receipts effortlessly across cellular and Wi-Fi networks. It is lighter and now has a 24-hour battery life. ToastIQ is an AI-powered intelligence engine that combines restaurant expertise, data and AI to enhance its platform.
Driven by strong results and continued momentum, TOST now expects 29% growth (earlier guided to 26%) in fintech and subscription gross profit for 2025 at the midpoint, while adjusted EBITDA is now estimated at $575 million ($550 million was the previous projection), with a 32% margin, an increase of five percentage points from 2024.
Challenges Remain for TOST
Nonetheless, heightened uncertainty prevailing over the macro environment amid escalating trade war, with tariff troubles raising fears of increased costs and dampening consumer purchasing power, remains a concern. Higher tariffs can lead to a reduction in profit for the average independent restaurant operator. The restaurant industry is still susceptible to consumer spending, labor inflation and supply chain volatility. A consumer downturn or cost pressures could reduce restaurant spend on technology. This can impact TOST’s performance, which remains heavily reliant on the restaurant industry.
Decline in Gross Payment Volume or GPV per location is another headwind, as it implies lower average transaction volumes. TOST’s overall GPV surged 23% year over year to $50 billion in the second quarter, but GPV per location declined 1% year over year.
Higher costs can weigh on profitability. In the second quarter, operating expenses, excluding bad debt and credit-related expenses, increased 18%. Sales & marketing expenses grew 28% year over year due to marketing investments across retail and international segments. Higher costs can prove a drag on margins, especially if revenue growth does not keep pace. Management cautioned that fourth-quarter margins will be lower due to the seasonality of payment volumes, plus higher tariff expenses in the second half of the year.
Image Source: Zacks Investment Research
Although Toast emphasized progress in the international, retail and enterprise verticals, the investment in these nascent areas could take time to scale and may drag on margins in the near term if costs outpace revenue contribution.
TOST needs to watch out for the competitive pressure from various small and big players who are also vying for a larger share of this lucrative market. Block (XYZ - Free Report) , Oracle (ORCL - Free Report) and Lightspeed (LSPD - Free Report) compete in varying degrees with Toast, though each company approaches the market differently.
Tech behemoth Oracle offers a wide range of products, including POS systems like Oracle Retail Xstore and Oracle MICROS Simphony POS. MICROS Simphony targets large restaurant chains, hotels, casinos and resorts. Lightspeed provides a one-stop commerce platform for merchants and serves retail, hospitality and golf businesses. LSPD offers a cloud solution that transforms and combines online and physical operations, multichannel sales and aids in expansion to new locations. It also facilitates global payments, financing and connection to supplier networks.
Block, formerly known as Square, offers financial and marketing services through its comprehensive commerce ecosystem that helps sellers to start, run and grow their businesses. Block’s Square for Restaurants POS platform competes directly with TOST’s offerings.
Lofty Valuation for TOST
TOST stock is also not so cheap, as its Value Style Score of F suggests a stretched valuation at this moment.
Image Source: Zacks Investment Research
TOST is trading at a premium with a price/book multiple of 12.07X compared with the industry’s 6.94X.
Investment Thesis for TTD Stock
Toast’s healthy revenue growth, expanding market share, and ongoing product innovation are expected to drive long-term growth. Stretched valuation and near-term headwinds from macro uncertainty, tariffs, and declining GPV per location warrant caution. Competitive pressures from both established and emerging players could also limit upside potential.
For investors already holding shares, the story remains compelling, but for new entrants, it may be wise to wait for a better entry point.
At present, TOST carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.