After an initial after-hours sell-off, Toast (TOST 3.45%) shares rebounded after the restaurant management software-as-a-service (SaaS) company reported solid fourth-quarter results and issued upbeat guidance.
Let's dig into the company's recent results and prospects to see if the stock's rebound can continue.
NYSE: TOST
Key Data Points
Strong growth continues
Toast continues to do a great job of adding new locations, bringing on about 8,000 new net restaurants (a 22% year-over-year increase) in the quarter and 30,000 for the year, for a total of approximately 164,000. The company called out the traction it was getting in international markets, as well as with food and beverage retailers. Meanwhile, it said its enterprise rollouts and pipeline have "never been bigger."
Overall, Toast's total Q4 revenue climbed 22% to $1.63 billion. Subscription revenue increased 28% to $256 million, while financial technology revenue grew by 22%. Toast's GPV (gross payment volume), which is the payments the company processes for its restaurant customers, rose by 22% to $51.4 billion.
Annual recurring revenue (ARR), meanwhile, jumped by 26% to $2 billion. For Toast, ARR is the combination of its annualized subscription revenue and the gross profits of its payment processing business. This is considered its most important metric given the difference in gross margin between the two businesses. It was boosted by a 2-basis-point increase in its payment processing take rate to 48 basis points.
Earnings per share (EPS) soared from $0.05 a year ago to $0.16 in the quarter. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, soared 47% from $111 million a year ago to $163 million.
Looking ahead, Toast forecasted 2026 subscription services and fintech gross profit to be in a range of $2.27 billion to $2.30 billion, representing 20% to 22% growth. It is looking for adjusted EBITDA of between $775 million and $795 million.
For Q1, it projected subscription services and fintech gross profit of $505 million to $515 million, equating to 22%-24% growth. The sees adjusted EBITDA landing in a $160 million to $170 range.
Image source: Getty Images.
Is the stock a buy?
While Toast has been caught in the SaaS sell-off, given its focus on small and medium-sized restaurants, the chances of its business being disrupted by artificial intelligence (AI) seem low. Meanwhile, the company has been embracing AI tools and sees AI agents becoming a future growth driver. It also continues to have nice opportunities expanding beyond its core, small U.S. restaurant customer base.
From a valuation standpoint, I believe the best way to value Toast is based on its ARR, which, for 2026, the company projects to be $2.3 billion. Based on that, the stock trades at an enterprise value -to-ARR multiple of around 6 times. That is very inexpensive given its growth, making the stock a buy even after its post-earnings rebound.
