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TOST Rises 44.1% YTD: Should Investors Buy, Hold or Sell the Stock?
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Toast (TOST - Free Report) shares have gained 44.1% year to date (YTD), outperforming the Zacks Computer and Technology Sector and S&P 500 index’s return of 19.1% and 17.7%, respectively.
Toast stock has also outperformed the Zacks Internet - Software industry’s return of 15.9% YTD. The outperformance reflects investors’ confidence in Toast’s potential scale of its business.
Reasons Behind TOST Stock’s Outperformance
Growing adoption of its solutions has bolstered investors’ confidence in Toast’s growth prospects. The company is expanding among small and medium businesses in the United States and plans to expand its total addressable market internationally, covering enterprise restaurants and food and beverage retail. It added 8,000 locations in the second quarter of 2024, covering a market share of 13%.
Besides location increases and international expansion, Toast’s business is also driven by rising Annual Recurring Revenue due to a larger share of repeat customers. Higher adoption of its solutions among customers is mainly due to its suite-based packaging model that simplifies sales and encourages customers to adopt more of the platform over time, boosting Average Revenue Per User.
Toast is also introducing new tools like AI-powered marketing suites, digital storefronts and restaurant management systems that enhance guest experience and efficiency while reducing costs.
Toast YTD Performance
Image Source: Zacks Investment Research
How Toast Stack Up Against Competitors
Toast’s core software business combines payment processing with a point of sales (POS) facility. The solution focuses on reducing the turnaround time for orders and optimizing operations and seamless payment functionality.
However, TOST faces competition from comparable solutions provided by Block (SQ - Free Report) , Fiserv (FI - Free Report) Clover and Lightspeed (LSPD - Free Report) Upserve. Toast’s other solutions, including Toast Mobile Order & Pay and Toast Tables, which provide food delivery and reservation services, face competition from DoorDash, Uber Eats and GrubHub.
All of these POS providers, including Block, Fiserv Clover and Lightspeed Upserve, provide solutions like payments, online ordering and POS services. However, Toast is differentiating its offerings by increasing its connectivity in the SMB space, the larger part of which remains unserved. By the end of second-quarter 2024, Toast is already serving 120,000 locations in total.
Driven by strong ARPU and ARR from increasing market share, Toast expects its full-year 2024 gross profit to be between $1.34 billion and $1.36 billion, indicating 27-29% growth compared with 2023. The Zacks Consensus Estimate for 2024 revenues is pegged at $4.90 billion, indicating growth of 26.8% year over year.
Conclusion
Toast is rapidly increasing its profit margins on the back of increasing market share. However, the company also faces stiff competition from other established players challenging its growth. TOST carries a Zacks Value score of D at present, suggesting that the stock is not so cheap at present. We suggest investors to wait for a better entry time for this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Toast (TOST - Free Report) shares have gained 44.1% year to date (YTD), outperforming the Zacks Computer and Technology Sector and S&P 500 index’s return of 19.1% and 17.7%, respectively.
Toast stock has also outperformed the Zacks Internet - Software industry’s return of 15.9% YTD. The outperformance reflects investors’ confidence in Toast’s potential scale of its business.
Reasons Behind TOST Stock’s Outperformance
Growing adoption of its solutions has bolstered investors’ confidence in Toast’s growth prospects. The company is expanding among small and medium businesses in the United States and plans to expand its total addressable market internationally, covering enterprise restaurants and food and beverage retail. It added 8,000 locations in the second quarter of 2024, covering a market share of 13%.
Besides location increases and international expansion, Toast’s business is also driven by rising Annual Recurring Revenue due to a larger share of repeat customers. Higher adoption of its solutions among customers is mainly due to its suite-based packaging model that simplifies sales and encourages customers to adopt more of the platform over time, boosting Average Revenue Per User.
Toast is also introducing new tools like AI-powered marketing suites, digital storefronts and restaurant management systems that enhance guest experience and efficiency while reducing costs.
Toast YTD Performance
Image Source: Zacks Investment Research
How Toast Stack Up Against Competitors
Toast’s core software business combines payment processing with a point of sales (POS) facility. The solution focuses on reducing the turnaround time for orders and optimizing operations and seamless payment functionality.
However, TOST faces competition from comparable solutions provided by Block (SQ - Free Report) , Fiserv (FI - Free Report) Clover and Lightspeed (LSPD - Free Report) Upserve. Toast’s other solutions, including Toast Mobile Order & Pay and Toast Tables, which provide food delivery and reservation services, face competition from DoorDash, Uber Eats and GrubHub.
All of these POS providers, including Block, Fiserv Clover and Lightspeed Upserve, provide solutions like payments, online ordering and POS services. However, Toast is differentiating its offerings by increasing its connectivity in the SMB space, the larger part of which remains unserved. By the end of second-quarter 2024, Toast is already serving 120,000 locations in total.
Driven by strong ARPU and ARR from increasing market share, Toast expects its full-year 2024 gross profit to be between $1.34 billion and $1.36 billion, indicating 27-29% growth compared with 2023. The Zacks Consensus Estimate for 2024 revenues is pegged at $4.90 billion, indicating growth of 26.8% year over year.
Conclusion
Toast is rapidly increasing its profit margins on the back of increasing market share. However, the company also faces stiff competition from other established players challenging its growth. TOST carries a Zacks Value score of D at present, suggesting that the stock is not so cheap at present. We suggest investors to wait for a better entry time for this Zacks Rank #3 (Hold) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.