Is Toast (TOST) a Buy at These Levels? Valuation Metrics and Earnings Risks Reveal the Answer

The stock of Toast, Inc. (NASDAQ: TOST) has been under pressure this year, down nearly 40% from its 52-week high. But is this dip a fleeting opportunity to buy a growth stock at a discount—or a red flag signaling deeper problems? Let's dissect the numbers.

Valuation: Overpriced Compared to Peers and Fundamentals

Toast's valuation metrics scream caution. As of Q2 2025, its EV/EBITDA ratio sits at 125.81, calculated using an enterprise value of $23 billion and a trailing twelve-month EBITDA of $183 million. This is far above peers like Block (SQ), which trades at 28x EV/EBITDA, and Lightspeed (LSPD), at 9x P/S (Toast's P/S ratio is 3.6x–4.17x).

Analysts at Zacks Investment Research highlight that Toast's current stock price of $41.50 is 75% overvalued compared to their fair value estimate of $10.24. This gap is unsustainable unless revenue growth accelerates dramatically—a tall order given the company's slowing momentum.

Earnings: Growth Slows, Costs Rise

Toast's revenue is projected to grow 23% in 2025, reaching $6.08 billion. But dig deeper, and the picture darkens:

• Gross Payment Volume (GPV) per location has fallen 3% year-over-year, a critical metric for revenue. Management warns this trend will persist.
• Operating expenses are surging: Sales and marketing costs rose 25% YoY, squeezing margins. Even with an improved EBITDA margin of 8.4%, the company's free cash flow (FCF) remains fragile, with a projected $619 million by 2026—still below investor expectations.

The problem? Toast is relying on costly merchant acquisitions to fuel growth. With restaurant industry churn at 20% annually, this strategy is unsustainable.

Zacks' Take: Risks Outweigh Rewards

Zacks assigns Toast a “Sell” recommendation, citing two key risks:
1. Margin pressures: Tariffs and hardware costs are eating into profits.
2. Competitive threats: Block and Lightspeed are expanding into adjacent markets, while Toast's ecosystem lags.

Their Peter Lynch fair value model calculates Toast's intrinsic value at just $2.57, a staggering 94% discount to its current price. The model factors in revenue growth, P/E multiples, and dividend yields—a stark warning.

Investment Verdict: Proceed with Extreme Caution

Toast's valuation is a puzzle. On one hand, it has a dominant niche in restaurant tech, with partnerships like its recent deal with Happy Belly Food Group. On the other, its metrics are wildly disconnected from fundamentals.

The bottom line: The dip isn't a buying opportunity—it's a signal to step back. Until Toast stabilizes GPV growth, curtails expenses, and demonstrates FCF resilience, the risks here are too great. Investors chasing growth would be better served by peers like Block (SQ), which offers similar exposure at a fraction of the valuation.

Final Take: Avoid TOST for now. The numbers suggest a sharp correction is overdue, and the company's challenges are structural, not temporary.

Data as of July 7, 2025. Always consult a financial advisor before making investment decisions.