If you've ever worked in a restaurant, you'll know technology had largely passed the industry by. Most eateries have a hodgepodge of software applications for scheduling, inventory, payroll, digital ordering, and payment processing. Even worse, these systems don't communicate, making them even more burdensome.
That's why Toast (TOST 2.08%) has captured the attention of investors, driving its stock up 34% so far this year. The company's integrated software-as-a-service (SaaS) platform handles all those tasks and more, offering the industry an attractive solution.
Wall Street has taken notice. BNP Paribas Exane analyst Thomas Poutrieux upgraded Toast to outperform (buy) from neutral (hold) while boosting his price target to $30, representing potential upside of 22% as of this writing.
Based on the company's recent results, there are plenty of reasons to be bullish. Fourth-quarter revenue of $1.0 billion grew 35% year over year, while annual recurring revenue (ARR) of $1.2 billion also jumped 35%. At the same time, the company cut its net loss by two-thirds to $36 million. Furthermore, Toast generated strong operating and free cash flow, so profitability is on the horizon.
There's more. Just last month, Toast shared two announcements of significant interest to investors. First, Caribou Coffee selected Toast's software platform to serve its 500 locations across the U.S. Then, Choice Hotels International selected Toast to serve two of its upscale brands -- Cambria Hotels and Radisson -- while being named a qualified vendor for its other properties. These announcements highlight the growing demand for Toast's "restaurant operating system."
Toast's $1.2 billion of ARR at the end of 2023 is a drop in the bucket compared to its total addressable market, which management estimates at $110 billion.
Wall Street expects Toast's revenue to grow roughly 23% in each of the next two years, which is likely conservative, given revenue has climbed 129% in just the past two years.
Yet Toast stock is currently selling for just 2.8 times forward sales estimates.
Taken together, Toast stock is a buy.