Toast, a provider of restaurant software, is IBD Stock of the Day as it targets expansion internationally as well as into food and beverage retail. Toast stock has advanced 47% in 2024, though shares fell following its investor day in late May.
On the stock market today, Toast stock rose 5.3% to close at 27.30. With the gain, Toast stock moved into a buy zone. The digital payments stock owned an entry point of 26.29 from a cup-with-handle base. A 5% buy zone extends to 27.60.
Toast's products range from point-of-sale hardware, kitchen displays, payment processing, supplier and invoice management to payroll, delivery management, menu consultation and marketing programs.
Gross Profit Key Financial Metric
While Toast has outperformed other payment stocks in 2024, shares fell on May 29 when the company hosted an investor day. Toast stock hit an intraday low of 21.32 on June 13. But bullish views on TOST stock then prevailed.
In 2024, Toast is expected to earn 45 cents per share on an adjusted basis vs. a 9-cent adjusted profit last year and a 27-cent loss in 2022, according to FactSet data.
For digital payments firms like Toast, gross profit is a key financial metric. That's the difference between total revenue and the cost of goods sold.
At the investor day, Toast management forecast recurring gross profit of "at least" 20% year-over-year growth "over the next 2-3 years." The outlook underwhelmed some investors. Consensus estimates had been around 25% gross profit.
However, Toast management also laid out expansion plans in its core restaurant business and in new markets. Toast's main competitors include Square-parent Block, Fiserv's Clover, Shift4, Lightspeed, TouchBistro and SpotOn.
Toast Stock: Referral Engine
In the March quarter, Toast added over 6,000 net new locations, reaching 112,000 overall, up 32% year over year. Meanwhile, happy Toast customers create a powerful "word-of-mouth" referral engine in the industry, analysts say.
"With 112,000 live locations now on its platform, Toast estimates that it has market share of roughly 13% in the core U.S. restaurant market," said William Blair analyst Stephen Sheldon in a report. "However, the team believes it still has significant runway domestically as well as in its target international markets and in adjacent categories like food and beverage retail."
Further, the company has expanded into Canada, the U.K. and Ireland.
Jefferies analyst Samad Samana also holds an upbeat view.
Toast Stock: Food And Beverage Retail
"Beyond expanding the total addressable market by 220,000 locations, we found it notable that TOST's new solution targeted at convenience stores, independent grocers, and bottle shops should benefit from much greater gross payment volume per location than its core U.S. restaurant locations," Samana in a report.
In May, Toast announced an artificial intelligence-based tool called Sous Chef. It provides restaurant managers with customer insights to drive sales growth.
Meanwhile, Toast's Q1 revenue rose 31% to $1.075 billion, topping estimates of $1.048 billion.
Earnings before interest, taxes, depreciation and amortization, or EBITDA, came in at $57 million, handily beating estimates of $25.2 million. The company raised full-year EBITDA guidance to $250 million to $270 million from $200 million to $220 million.
Toast's long-term financial goals also include 30% to 35% EBITDA margins.
"With strong top-line growth, coupled with a continued shift toward margin-rich subscription revenue and improvements in operating leverage, we believe that TOST will remain on track toward its long-term adjusted EBITDA target," said RBC Capital analyst Daniel Perlin in a report.
Toast Technical Ratings
Co-founders Steve Fredette and Aman Narang worked at Endeca, a business intelligence software firm. Oracle acquired Endeca in 2011.
The company was founded in 2012, but Toast stock didn't go public until September 2021. The initial public offering raised $870 million.
Meanwhile, Toast stock holds an IBD Composite Rating of 73, according to IBD Stock Checkup.
IBD's Composite Rating combines five separate proprietary ratings into one easy-to-use rating. Also, the best growth stocks have a Composite Rating of 90 or better.
Further, Toast stock has an Accumulation/Distribution Rating of B-plus. That rating analyzes price and volume changes in a stock over the past 13 weeks of trading. Its current rating indicates more funds are buying than selling.
The rating, on a scale of A+ to E, measures institutional buying and selling in a stock. A+ signifies heavy institutional buying; E means heavy selling. Think of the C grade as neutral.
Based in Boston, the company also has U.S. offices in Chicago, Omaha, Reno, San Francisco and Nashville. Toast's software runs on cloud-computing infrastructure at Amazon Web Services, part of Amazon.com.
In 2020, the company rolled out Toast Capital, which provides loans to restaurants.
A previous version of this story included inaccurate earnings estimates for Toast in 2023 and 2022.
Follow Reinhardt Krause on Twitter @reinhardtk_tech for updates on artificial intelligence, cybersecurity and cloud computing.
