Shares of Toast (TOST -3.73%) have largely underperformed since the company's public market debut in 2021. The restaurant-technology business may be moving into a new era, though, and investors might see Toast reheated soon.
NYSE: TOST
Key Data Points
Toast's fundamentals are looking better. The company beat second-quarter expectations, and its earnings per share (EPS) almost doubled year over year. Toast raised its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance for Q3 to $220 million. A slew of analysts increased their price targets on the good news.
The company continues to add new restaurants to its customer base while simultaneously increasing the number of transactions it processes. It's also investing in artificial intelligence (AI) tools that will help customers with order taking and administrative tasks, and generate valuable customer insights. Lastly, Toast expanded its integrations with Alphabet's Google and entered into a new partnership with the Dutch payments company Adyen.
Image source: The Motley Fool.
Investors have been scared off by the consistent insider selling, including by the CEO and chief revenue officer. The company's valuation is still a bit rich in my opinion. Despite the stock declining 15% in the past year and more than 44% since its initial public offering (IPO), the trailing price-to-earnings (P/E) ratio still sits in the mid-40s.
The company is competing with powerhouse Square, which Block owns. Square has a slight advantage in market share, but Toast could gain ground as it focuses on its Google integration and partnerships.
Toast has an expanding platform and customer base; it added 9,500 new net customers in its latest quarter. I'm cautiously optimistic that there is room for this stock to run over the next few years as its metrics continue to improve. Investors will still need a bit of patience and appetite for Toast's volatility, however. Ultimately, I like where Toast is heading.
