1 Growth stocks down 59%, available to buy right now

If you look hard enough, you can still find great companies to buy from. toast (TOOST -1.96%) In particular, the company announced financial results that were cheered by the market, with the stock price soaring 13% immediately after the announcement.

If you dig a little deeper, there’s a lot to like about this company and the direction it’s heading. growth stocks It fell 58% from its all-time high. Here’s why it’s still a smart buy right now.

Penetrating large-scale industries

At a high level toast Meet your restaurant’s specific needs. This means providing hardware and software solutions to handle payment processing, omnichannel ordering, loyalty programs, employee payroll, accounting, and more. Toast is essentially the leading operating system provider for owners and operators, with the goal of making restaurant operations as smooth as possible.

The good news is that the opportunity with Toast is truly enormous. There are a total of 860,000 restaurants in the United States, of which 112,000 are already customers of these businesses. This figure increased by 32% compared to the previous year. If the business can make significant headway in international markets, the expansion runway will be even greater, as there are 22 million restaurant locations worldwide.

First quarter sales increased 31% to a total of $1.1 billion. That was better than Wall Street analysts expected. Just three years ago, Toast had $282 million in sales in the first quarter of 2021, so it’s clear the company is catching up with restaurants.

Management’s goal is to increase recurring revenue, such as subscriptions and payments, to add more stability and predictability to its operations. On an annualized basis, the segment’s revenue was $1.3 billion, up 32% from the first quarter of 2023.

reach a conclusion

Toast’s growth is very impressive, especially considering the uncertain economic environment we find ourselves in. However, there is much to be desired regarding the final outcome of the project. In its most recent quarter, Toast reported a net loss of $83 million, similar to the same period last year.

I’m generally skeptical of companies that don’t generate consistent profits. In my opinion, this adds a lot of risk to investors because it shows that the business model is not yet proven. Moreover, it is always difficult to predict exactly when a positive net profit will be achieved.

Still, I’m willing to give Toast the benefit of the doubt. The reason is that the company is developing it. economic moat This is because customers have high switching costs.

Put yourself in the shoes of a restaurant owner. You, your team, and your customers are all fully familiar with Toast’s products. Things are going smoothly and no problems have arisen.

In this scenario, you likely won’t change your competitor’s products and services, even if they are cheaper. Imagine the messy process of switching from Toast while also onboarding a new system. That seems like a difficult task.

This gives us confidence that Toast still has power, especially since its customer base is more or less fixed. As a result, there is hope that the business may eventually start generating huge profits as revenues continue to grow at a rapid pace.

lots of upside

The market doesn’t ask investors to pay for toast. stocks are price-to-sales ratio This is 3.5, well below the historical average multiple of 4.7.

Considering the moat and massive growth opportunity we just discussed, Toast stock appears to have a lot of upside for long-term investors.