Is it too late to buy toast stock?

do toast (TOOST -1.89%) Is there any rocket fuel left in the tank?

Shares of the restaurant management software specialist are up 26% in less than three months. S&P 500 (SNPINDEX: ^GSPC) During the same period, the index rose 8%, lagging far behind. Moreover, the company is not profitable and many investors shy away from its growth-focused management style.

But I continue to recommend Toast stock to anyone listening. And I’m not stopping now. Because this gentle rise looks like the beginning of a long-term upward trend.

Simply put, I see tremendous value in Toast’s high-octane growth story, and the stock has room to rise even further. Here’s how:

Image source: Getty Images.

Toast Differences

Many companies offer software solutions for restaurant management. I like the Giants block it (NYSE: SQ) and Fiserv (NYSE:FI) We provide advanced POS systems and payment processing solutions. When it comes to managing employees and processing payroll, many restaurants rely on: Paycheck (NASDAQ: PAYX) Or the Gusto platform. For customer loyalty programs, restaurant operators may use Paytronix, Inentivio, or wave technology‘S (New York Stock Exchange: PAR) punch.

You can see where this is going. Toast faces very capable competitors in every service category, from marketing program management to inventory tracking. However, the same name rarely appears in different categories. While some services, like Fiserv’s Clover and Block’s Square-branded services, cross over into a few niches, Toast does it all with native access to the entire dataset from every corner of the system.

Having all these tools available under one digital roof is more than just a cost-effective solution. It also helps managers maximize the value of every data point. If your new spicy chicken sandwich becomes a huge hit, Toast will stock your cooler with all the right ingredients while also coming up with an effective marketing approach to keep you on the bandwagon. Chefs set up displays in their kitchens to not only show incoming orders but also automate ideal cooking times and grilling orders.

If there’s something you can automate, Toast is probably already automating it for you. Sales trends, customer preferences, and staffing schedules all impact your restaurant’s daily operations, and Toast automates cross-linked data access. While it may be possible to accomplish the same task with a collection of disparate software from multiple vendors (including a few simple spreadsheets or handwritten notes), Toast makes it easy.

But wait a minute. There’s more!

In addition to the company’s unique full-service software solutions for its customers, Toast operates its own business in other ways.

The company is currently in a high-growth phase and is targeting all available assets to optimize adoption of its tools and services across the country. It’s a very old story, right? But Toast relies on two powerful growth accelerators:

• Toast offers POS and order-taking hardware, such as tablets and self-service stations. By selling these tools at a loss, you are essentially turning your hardware business into a marketing program. If you take your first steps with an affordable hardware setup, our award-winning software will keep your new customers happy and loyal for years to come.
• Instead of blanketing the country with marketing messages, Toast handpicks a few geographic focus areas and provides full court media coverage with advertising and demo offers in these hotspots. Several successful launches in the same area spread the word among local business owners. Positive word of mouth spreads quickly when multiple new customers spread the word at the same time.

The negative returns are a direct result of Toast’s loss leader expansion tactics. A company can raise hardware prices to stem the loss of revenue, but at the cost of sharply lower revenue growth and customer acquisition. That won’t happen in the near future. This is why the final figures are printed in red ink.

Anecdotally, Toast must have included the Tampa Bay area in its recent expansion efforts. I don’t choose my dinner spots by location management platforms, but the Toast name came up in three of my recent dining experiences. Every time it’s revealed that a local restaurant relies on the Toast platform, I get a little shaken up. I’m not a shareholder yet, but it’s somewhat thrilling to see my favorite growth stories unfold in the real world.

So is it too late to buy toast in January 2024?

No, a 26% surge in the stock price doesn’t mean it’s the end of the line. In reality, it is just a slight bounce from very undervalued lows.

Six weeks after its 2021 IPO, Toast’s stock is still trading 33% below its yearly high and 72% below its all-time high of $65.22 per share. Soaring Revenue Charts and Improved Profit Margins:

TOST Revenue (TTM) data from YCharts

This is all part of a strong long-term growth plan that requires a large user base to generate net profits well above breakeven over the long term. First, Toast management expects positive full-year numbers in fiscal 2024 by strengthening its more flexible metrics for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA).

“We continue to scale our business in a durable manner, leveraging the opportunities before us to build a generational business that delivers significant value to our customers and shareholders,” CFO Elena Gomez said during the third quarter earnings call in November. “There is,” he said.

I can get behind that vision. The investments that build true wealth are those that balance growth prospects and appropriate levels of profitability over decades, not in a few quarters or years.

These days, I might stop writing about toast long enough to buy a few stocks. Dear readers, please stay tuned. Please feel free to invest in these interesting growth stocks when I cannot.