Toast (NYSE: TOST) is a little rough around the edges. Despite recent missteps, the company continues to trade 66% below its previous all-time high achieved before the onset of the 2021 inflation crisis. This provider of software tools and payment services for restaurant management is under scrutiny in the investment realm.
Despite its struggles, I believe Toast presents an exciting opportunity for growth. Let’s delve into the pros and cons of this controversial investment.
Understanding the Decline in Toast’s Stock Price
Toast faced backlash after implementing an unpopular consumer-to-Toast fee for online order processing last summer, eventually retracting it due to significant dissatisfaction among restaurant customers.
The recent reduction of about 10% of its workforce shed light on past hiring missteps. The company announced a restructuring to trim costs, resulting in one-time charges of approximately $50 million in the first quarter of 2024, with anticipated annual operational cost savings exceeding $100 million.
The appointment of co-founder Aman Narang as CEO earlier this year, though a familiar face, signaled change to many investors, potentially seen as a vulnerability in the company.
However, these recent challenges do not overshadow Toast’s capabilities in guiding restaurant operations or providing financial returns.
Why I See Promise in Investing in Toast
No business is flawless. Making occasional missteps is inevitable in the world of investments. Toast’s imperfect record merely offers room for growth. The company’s recent financial performance is commendable, exemplified by its revenue growth and positive cash flows.
Toast has experienced significant revenue growth and cash profits, with annual sales more than doubling in two years and nearly quadrupling since 2020. The company manages over $126 billion in payment service transactions across 106,000 customer locations, demonstrating its strong market presence.
The addition of major clients like Caribou Coffee hints at potential future expansions, with the possibility of attracting other well-known brands in the market, such as Einstein Bros. Bagels and Panera Bread.
Evaluating the Risk and Reward in Investing in Toast
Despite its imperfections, Toast’s performance is laudable. The stock currently trades at a reasonable price-to-sales ratio of 3.3, highlighting a potential undervaluation compared to its slower-growing peers in the market.
Investors may overlook Toast’s current setbacks once the company corrects its past errors, leading to substantial returns in the future. Investing in Toast entails risks, as with any investment, but the potential for growth and success far outweighs the perceived downsides.
Should you invest $1,000 in Toast right now?
Consider this before diving into Toast stock:
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