The value proposition of Toast (TOST 3.42%) continues to draw restaurants and investors alike. The fintech company's focus on the restaurant industry's specialized needs has made it competitive against larger companies like Block, which has sought to become the fintech company of choice for businesses.

Nonetheless, Toast had the misfortune of launching its initial public offering (IPO) in September 2021, near the height of a bull market. Consequently, the stock has fallen about two-thirds from the $40 per share IPO price. Despite that history, the fintech stock likely deserves a closer look, and here's why.

The state of Toast stock

Toast has stood out by building a fintech ecosystem specially tailored to the restaurant industry. By streamlining processes such as payroll, scheduling, billing, payments, and other functions into one ecosystem, restaurants can better organize key functions, thus saving money.

Also, with a product tailored to the restaurant industry, Toast can offer benefits that are either not provided or more difficult to use in another platform. That gives Toast an implicit competitive advantage over Block's Square ecosystem, which offers a more broad-based fintech platform for businesses.

However, most restaurants are small businesses, a segment more prone to business failures in general. This was made worse by the intense competition in the restaurant industry and the legacy of the pandemic, with both factors increasing the likelihood of business failures.

Rising food prices and a sluggish economy have also pressured the restaurant industry. Such factors make it more appealing for customers to eat at home, placing further pressure on the industry.

Why Toast holds some advantages

Despite that challenge, the company continues to attract an increasing number of restaurants. As of the end of the third quarter, the company had attracted over 99,000 restaurants on its platform, with more than 6,500 signing up in the third quarter alone.

Amid the international expansion, Toast estimates a total addressable market of $55 billion in the U.S. and at least $110 billion globally. Since the company raised its revenue guidance for 2023 to the $3.83 billion to $3.86 billion range, it covers only a tiny percentage of that potential global market.

Most of those restaurants are in the U.S., though it also offers the service to restaurants in Canada, the U.K., and Ireland. Furthermore, if it follows Square, which now operates in eight countries, it should succeed in capturing an increased amount of business outside of the U.S.

Not surprisingly, the added business has improved its top line. In the first three quarters of 2023, revenue of $2.8 billion rose 44% compared with the same period in 2022. Also, Toast cut its operating losses to $231 million versus $285 million in the same year-ago period. Net losses only increased in 2023 due to a one-time change in the fair value of warrant liability in 2022, amounting to $102 million. In the first nine months of 2023, net losses rose to $210 million versus $175 million in the same year-ago timeframe.

Additionally, Toast's price-to-sales (P/S) ratio has fallen to 2, taking it to all-time lows. This is below the average P/S ratio of 2.5 for the S&P 500, highlighting the low valuation that Toast has reached.

Consider Toast stock

At current levels, Toast stock looks like a buy. Admittedly, its presence in the restaurant industry makes its client base vulnerable due to intense competition and vulnerability to outside economic factors such as rising prices or pandemic shutdowns.

However, Toast continues serving increasing numbers of restaurants in the U.S. and abroad. Also, thanks to a record-low P/S ratio, investors who buy now face significantly less risk. As long as Toast stays on its current path for growth, it can likely remain competitive and drive shareholder value as more restaurants seek the efficiencies of its platform.