Maybe you've been watching Toast (TOST 1.25%) for a while. The maker of restaurant management software has been a market-beating performer recently, rising 75% in 52 weeks and 242% over the past three years.
But how well do you know this company and its stock? Here are three things you should know before picking up your first Toast shares.
1. Toast's stock isn't cheap
Those exciting stock price gains have a dark side. Toast's shares are quite expensive nowadays.
On June 24, 2025, Toast shares are priced at 191 times trailing earnings and 63 times free cash flows. That's enough to scare away many prospective investors, even if they were excited about Toast's massive returns.
That's only more true if you see Toast as a play on the restaurant sector. Why hand-pick promising food stocks when you can bet on the whole food service market with a single stock? Well, because Toast's price-to-earnings ratio is richer than even the wildest growth stories in this area. Dutch Bros (BROS -1.81%) trades at 183 times earnings today and Wingstop (WING -1.72%) stops at 61 times earnings. Most of the true giants in this industry have P/E ratios in the mid-20s.
2. This stock deserves a price premium
Toast didn't get expensive by accident. The company is growing much faster than other names in the restaurant sector. Its annual sales growth has averaged a stunning 50% over the last five years, way ahead of Dutch Bros' 40% and Wingstop's 26%. It's not a close race:
TOST Revenue (TTM) data by YCharts
And that's not the whole story. Toast was unprofitable for many years, maximizing its sales growth with every available penny of spare capital. That changed last year. Toast's earnings and cash flows are soaring right now, but the metrics are still so close to the breakeven point that the resulting valuation ratios don't make sense yet.
Give the company some time and you'll see the profit-based valuations melt down to reasonable levels -- particularly when you account for Toast's incredible business growth. When you look at Toast's forward-looking price to earnings to growth ratio (PEG) next to Wingstop's and Dutch Bros', the software specialist barely even shows up on the chart. In this context, Toast's stock looks tremendously affordable:
TOST PEG Ratio (Forward) data by YCharts
Yes, the stock looks expensive in 2025, but I would argue that it's worth every bit of this lofty valuation.
3. Toast keeps innovating
Toast isn't resting on its laurels. The company keeps developing new tools to serve its clients even better, and that's the secret sauce for this company's growth strategy.
For example, Toast partnered with SoundHound AI (SOUN 2.51%) two years ago to create SoundHound for Restaurants. With this tool, restaurant staff can manage their orders and find answers to business questions with simple voice commands.
Image source: Getty Images.
Two months ago, the company introduced the ToastIQ artificial intelligence (AI) platform. Toast's software already helped managers track their inventory, analyze popular order trends, and create effective advertising messages, but ToastIQ ties all of these functions together in an integrated bundle.
In other words, I don't expect Toast's skyrocketing growth to slow down any time soon. This growth stock is just getting started on a long journey of expansion and innovation. The stock is expensive for all the right reasons.
