Toast Stock: A Year Ahead, What to Expect?

As we look ahead to the next 12 months, investors are wondering where Toast (TOST) stock will be. The restaurant technology provider has had a strong run, with its stock more than doubling over the past year. However, it remains nearly 40% below its all-time high from November 2021. So, will Toast's stock continue to rise over the next year? Let's dive into the company's business model, growth rates, and valuation to make an informed decision.

Toast provides point-of-sale (POS) payment systems, guest-facing and kitchen displays, and a cloud-based service for managing payrolls, loyalty plans, online orders, and reservations. It's essentially a one-stop shop for digitizing a restaurant. The company served 48,000 restaurants at the time of its initial public offering (IPO) in 2021, but that figure has grown to nearly 127,000 restaurants by the end of the third quarter of 2024. Its growth in gross payment volume (GPV) and revenue slowed down during the pandemic in 2020 but quickly recovered in 2021. Over the past three years, the company's growth has cooled off again as inflation curbed growth in the restaurant industry.



Toast also faces a growing number of competitors like Shopify and Block (formerly Square), which also provide POS platforms for restaurants. Analysts expect Toast's revenue to rise 28% in 2024, 23% in 2025, and 20% in 2026. While these projected growth rates are impressive, they suggest that Toast's business is maturing as it splits up the restaurant-digitization market with its competitors. However, with an enterprise value of $21.6 billion, Toast looks pretty cheap at 3.5 times next year's sales.

Focusing on margins and adjusted EBITDA, as Toast's business matures, it's expanding its higher-margin subscription services and financial technology solutions segment to curb its dependence on the lower-margin payment processing fees. It also laid off 50% of its workforce during the pandemic in 2020, pruned 10% of its employees in 2024, and continues to trim other expenses. That's why Toast's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) finally turned positive in 2023 and grew more than eightfold year over year in the first nine months of 2024. Analysts expect the company's adjusted EBITDA to rise 493% for the full year, 41% in 2025, and 43% in 2026. At its current enterprise value, Toast stock still looks reasonably valued at 42 times next year's adjusted EBITDA. That metric is also expected to turn profitable on a generally accepted accounting principles (GAAP) basis in 2024.



What's Toast's long-term strategy? During Toast's most recent earnings call last November, co-founder and CEO Aman Narang predicted the company could still "serve many multiples" of its existing customer count while "increasing market penetration in our current markets and continuing to expand our addressable markets over time." Narang pointed out that Toast had only penetrated about 14% of the American restaurant market so far, so it had plenty of room to grow over the next few years. He also said the company would continue to make "disciplined investments" to expand its ecosystem.

However, investors should note that Toast has increased its share count by 14% since its public debut through its stock-based compensation and a secondary offering. That dilution could continue if the company funds future acquisitions with stock instead of cash. Toast's insiders have also sold more than six times as many shares as they bought over the past 12 months, which could limit the company's upside potential.

Where will Toast stock be in a year? Toast's stock still doesn't seem expensive, relative to its growth potential, and its prospects should brighten if inflation cools off and the macro environment stabilizes. If that happens, this stock could head even higher over the next 12 months -- but I don't expect it to double again or set new record highs just yet. Keep an eye on Toast's growth trajectory, strategic focus, and valuation to make an informed decision about its stock's future.