Last year was a tough one for restaurant stock investors. Rising costs, intense competition, and changing consumer behavior crushed many high-profile restaurant chains. The fast-casual industry was hit particularly hard as low-income consumers reined in spending. This paradigm has created opportunities for eagle-eyed investors with a long-term outlook.
One such opportunity is Toast (TOST 3.45%), the digital platform and operating system for restaurants.
Image source: Getty Images.
Running a restaurant is notoriously difficult, made even more challenging by the hodgepodge of computer systems required to run an eatery. That's where Toast comes in. The company offers a large and growing suite of tools designed specifically for the industry, taking the digital complexity out of running a restaurant. Many users start out with the company's point-of-sale system and gradually add modules to handle inventory management, online ordering and delivery, employee scheduling, marketing, and more.
Despite the industrywide downturn last year, Toast continued to generate impressive growth. Third-quarter revenue grew 25% to $1.6 billion, while diluted earnings per share (EPS) of $0.16 surged 128%. The results were fueled by its annualized recurring revenue (ARR) run rate, which increased 30% to $2 billion, while total locations jumped 23% to 156,000. Toast also continued its track record of impressive customer wins, with TGI Fridays being the latest large-scale operator to join its ranks.
NYSE: TOST
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The company also announced multi-year strategic partnerships with Uber and Instacart, further expanding its empire.
Despite the company's consistent growth, solid execution, and growing subscription and recurring revenue, Toast stock was essentially flat last year, dragged down by the restaurant industry slump.
This represents a compelling opportunity for astute investors. Management believes the company can scale to 500,000 locations from 156,000 today, while increasing its revenue from existing locations.
Given Toast's track record, I think it can get the job done, and at less than 24 times forward earnings, it's reasonable priced. That's why I believe it's one of the best restaurant stocks to own for the next 10 years.
