It's been a rough year for Toast (TOST +0.18%) stock, with its shares down more than 30% year to date, as of this writing. The stock has been caught between the software-as-a-service (SaaS) sell-off and uneven restaurant industry sales.
Let's dig into the company's recent results and prospects to see if the stock is a buy on this dip.
Image source: The Motley Fool.
Solid growth continues
Operationally, Toast continues to perform well. The company's Q1 revenue jumped 22% to $1.63 billion. Subscription revenue climbed 28% to $268 million, while financial technology revenue increased by 22%. Toast's GPV (gross payment volume), which is the payments the company processes for its restaurant customers, rose by 22% to $51.3 billion.
NYSE: TOST
Key Data Points
Annual recurring revenue (ARR), meanwhile, soared by 26% to $2.2 billion. For Toast, ARR is the combination of its annualized subscription revenue and the gross profits of its payment processing business. This is the company's most important metric since there is a considerable difference in gross margin between its two main revenue sources. It was helped by its payment processing take rate increasing by 2 basis points to 51 basis points.
Toast added 7,000 new locations in the quarter. It now serves 171,000 locations, up 22% year over year. Meanwhile, 40,000 locations now use its Toast IQ artificial intelligence solution. It just launched Toast IQ Growth, which helps restaurants build their brand and includes its first AI marketing agent.
Earnings per share (EPS) more than doubled from $0.09 a year ago to $0.20 in the quarter. Adjusted EBITDA, meanwhile, jumped 35% from $133 million a year ago to $179 million.
Looking ahead, Toast raised its full-year forecast. It now expects its 2026 subscription services and fintech gross profit to be in a range of $2.29 billion to $2.32 billion, representing 21% to 23% growth. That's up from a prior outlook of $2.27 billion to $2.30 billion. It is looking for adjusted EBITDA of between of $790 million and $810 million, up from prior guidance of $775 million and $795 million.
For Q2, it projected subscription services and fintech gross profit of $565 million to $575 million, equating to 22% to 24% growth. It's looking for adjusted EBITDA to land in the $185 million to $195 range.
Is it time to buy the dip?
This past quarter, Toast got caught in the narrative that SaaS companies need to see revenue growth acceleration or else it's a sign that they are AI losers. That's a bit silly in my view, but the market has consistently sold off software stocks as a result.
Instead, Toast has seen its revenue settle into the low 20% growth range, with ARR growth in the mid-20% range. Meanwhile, its take rate has been edging up, and it's seeing solid subscription growth as it leans into AI modules. At the same time, it has a long runway of growth ahead as it expands into adjacent markets, like international, grocery, hotels, and chain stores.
Toast stock now trades at an enterprise value-to-ARR multiple of around 5.3 times 2026 ARR projections. On a forward P/E basis, it trades at below 14.5 times 2027 analyst estimates. That is an absolute bargain for a stock with its type of growth, and I'd be a buyer on the dip.
