Can a stock down 63% be worth purchasing today? Does that suggest investors are wrong? Toast (NYSE: TOST) stock has fallen despite solid growth indicators. Let's examine its decline, what investors may be missing, and how its falling price may be an opportunity.
Toast does what? Toast delivers restaurant SaaS solutions. It offers many hardware, software, payment processing, and other tools and services for bakeries, cafes, and fast food outlets. Toast's solutions streamline restaurant management with digital tools, data analytics, and payment systems, saving money and speeding up operations.
Toast has grown rapidly since going public in 2021 and is approaching GAAP profitability. Annualized recurring revenue (ARR), which provides deeper insight into ongoing operations, rose 35% to $1.2 billion in the 2023 fourth quarter. Gross profits rising 43% over last year outpaced revenue growth and boosted profitability. Fourth-quarter net loss improved from $99 million in 2022 to $36 million in 2023, while adjusted EBITDA climbed from $18 million to $29 million.
Though worrying, a growth company's loss is normal. Management indicated that it has grown rapidly over the previous three years and is reducing 10% of its workers to decrease costs. Companies scale by investing on growth. To improve efficiency, it may need to rebalance. Toast can show how it can develop efficiently with its resources.
Small niche, great chance Toast expanded 34% to 106,000 stores in 2023. If it seems like a lot, it views 22 million global places. It has less than 10% of the $15 billion serviceable addressable market in 2023 ARR, leaving $110 billion worth of opportunities. It has a high network effect and around 75% of new locations are inbound. Client recommendations account for 20% of new sites.
Toast wants to generate income through upselling, product innovation, and pricing in addition to new locations and clientele. It has numerous product tiers with hardware-software combinations and growth opportunities in its present client class.
Why does Toast stock fall? Despite its rapid expansion in recent years, Toast stock is down 63% from its peak. It's recovered and gained 40% in a year. Toast went public immediately before the previous bear market after a year of record IPOs. Since it was overvalued, it fell when stocks fell. Toast company's price-to-sales ratio of 3 appears appropriate for a high-growth stock.
Toast stock might soar. Toast's stock should rise as company gains consumers, grows sales, and makes smart scaling decisions. When Toast went public, investors were excessively enthused about IPO equities, which set them up for a crash.
Good value at present valuation. Toast stock could be a wonderful long-term asset in the coming years, therefore investors should consider buying it.
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