1 Growth stocks down 74%, available now

From the peak at the end of 2021 to the current low, toast (TOOST -4.18%) The stock price plunged a dizzying 74%. But this doesn’t seem like a downward spiral to me. Rather, I would call it a runway for smart investors. Let’s take a look at how the sharp decline in restaurant management software professionals appears to widen buying opportunities.

What does toast do?

Think of Toast as a Swiss Army knife for restaurateurs. We cover almost everything from taking orders to crunching numbers. The cloud-based software covers everything you need to run a restaurant, drive-thru taco joint, hole-in-the-wall café, local bar chain, and more.

The platform acts as a single, integrated tool that handles a variety of functions typically performed through various software tools, spreadsheets, or handwritten notes. Every part of the Toast system connects with every other part to feed sales details into marketing campaigns and make it easy for chefs and servers to check stock counts. Not enough salmon but too much alfredo sauce? Every server must recommend today’s pasta special! Toast not only tracks all of this information, but makes it easily available to all sections of your restaurant.

Why is the bottom line printed in red ink?

Some investors avoid Toast due to its severely negative returns and minimal cash flow. That’s why the stock is down more than 70% from its all-time highs, including a 25% decline over the past six months.

However, this is typical growth axis material. Toast is not yet making a profit. Instead, the company is boldly expanding its business by utilizing some unusual marketing techniques. The goal is to quickly build a large user base and focus on revenue within a few years. This is a common management style in the technology sector and is also common in consumer goods industries such as restaurant chains and media services.

So the bottom line will be printed in red depending on your selection. These initial losses are part of a long-term plan to maximize profits in the coming years.

Costly but effective marketing approach

The company sells its hardware at a loss, using POS systems and order-taking tablets to attract cost-conscious restaurants. This tactic goes a long way to explaining Toast’s negative profits. It also helps the company provide the tool to many new customers with the idea that once they experience this convenient system, they will become loyal and sticky customers in the long run.

Toast’s software has won the hearts of those who have tried it. The loss leader strategy generates a lot of buzz and positive word of mouth. The company amplifies this effect by focusing its expansion efforts on smaller geographic regions. Once people from a few different restaurants meet up after work to chat and switch to this cool new service management system, Toast should expect a ton of new test orders. Lather, rinse, and repeat for a few miles down the road. This is a clever recipe for low-cost marketing success.

And it’s working like a charm. The company now serves about 100,000 restaurants, up from 74,000 a year ago. That’s a jump of 34%. During the same period, revenue increased 37% and total payment volume on Toast’s payment processing system increased 34% to $33.7 billion. yes, that’s right billions Although not millions of dollars, Toast’s market reach is already very impressive.

I’m obsessed with toast, growing up from coast to coast

In summary, while Toast’s 74% decline from its IPO high may deter some, it presents an exquisite opportunity for forward-thinking investors. The decline reflects a strategic choice to prioritize expansive growth over immediate profits – a playbook that has been successful in both the technology and consumer sectors. The growth story continues amidst the clouds of the dark market, perhaps followed by international expansion later. Until now, Toast’s business had been so American that the company didn’t even report international sales.

At the same time, the stock is priced for absolute disaster, as if the business is going off track instead of executing a controlled growth strategy.

Of course, there are potential obstacles in the road ahead. Toast brings proven solutions for small operations to an enterprise-grade platform. This is not necessarily an easy process. Managing public perception is another challenge, as evidenced by customer uproar over a new $0.99 fee for online orders last fall. Since the company’s growth depends on a positive market reputation, Toast’s management cannot afford too many of these mistakes.

Nonetheless, Toast’s impressive positioning and revenue growth, combined with its innovative approach, suggests a promising future. It’s an attractive option for investors who can look beyond short-term fluctuations and focus on Toast’s future potential.