Toast Surges 105% in a Year: Should You Buy, Hold or Sell the Stock?

Toast Inc. TOST shares have rallied 105.5% in the past year, outperforming the Zacks Internet - Software industry, Zacks Computer and Technology sector and the S&P500 index’s return of 27.5%, 20.8% and 21%, respectively. The stock has also outpaced industry peers, including Twilio TWLO, Cloudflare NET and Atlassian TEAM.As one of the leading providers of software-as-a-service (SaaS) and hardware solutions focused at the restaurant market, TOST is experiencing strong traction in its fintech solutions, including integrated payment processing and allied restaurant-grade hardware. At the end of third-quarter 2024, Toast was operating across 127,000 locations worldwide.One Year Price Performance ChartImage Source: Zacks Investment ResearchTOST Thrives on Location Additions and Repeat CustomersTOST is primarily expanding among small and medium businesses in the United States and plans to expand its total addressable market internationally covering enterprise restaurants and food and beverage retail. Toast is also expanding by targeting new addressable markets, including the convenience store sector with the addition of features like Electronic Benefit Transfer and Supplemental Nutrition Assistance Program payments. Toast added 7,000 locations in the third quarter of 2024, reflecting 28% year-over-year growth.Alongside location additions and international expansion, Toast’s business is also driven by rising annual recurring revenues due to a larger share of repeat customers. Higher adoption of its solutions among customers is mainly due to its suite-based packaging model that simplifies sales and encourages customers to adopt more of the platform over time, boosting average revenue per user.Toast’s focus on innovation has enabled it to develop AI-powered marketing suites, digital storefronts and restaurant management systems that enhance guest experience and efficiency while reducing costs. New offerings like Branded App for native iOS and Android ordering, delivery, loyalty and SMS Marketing to drive engagement and revenues are expected to provide TOST an edge over its competition.The Zacks Consensus Estimate for 2025 revenues is pegged at $6.12 billion, suggesting growth of 24% year over year. The Zacks consensus estimates for earnings is pegged at 39 cents per share, indicating 1,186% growth year over year.TOST also beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, with an average surprise of 210.7%.Image Source: Zacks Investment ResearchFind the latest EPS estimates and surprises on Zacks Earnings Calendar.50-Day & 200-Day SMA Suggest Bullish TrendTOST shares are trading above the 50-day and 200-day moving averages, indicating a bullish trend.TOST 50-Day & 200-Day SMAChartImage Source: Zacks Investment ResearchChallenges Weighing on Toast’s TrajectoryTOST’s rapid expansion of the total addressable market is coming with rising sales and marketing (S&M) expenses which were up 25% year over year in the third quarter of 2024. While TOST continues to expand its market share through upselling and U.S. go-to-market channels, its customer churn among smaller restaurants is increasing. The churn among smaller restaurants will persist due to ongoing macroeconomic headwinds increasing cost and wage pressures.TOST is also increasing investments in research and development (R&D) to remain competitive against rivals in the fin-tech space, including Block, Fiserv and Lightspeed POS.Toast’s core software business combines payment processing with point of sales (POS) facility. However, all of these players, including Block, Fiserv Clover and Lightspeed Upserve provide solutions like payments, online ordering and point-of-sales services providing customers increased options to choose from.Conclusion: Hold TOST for NowToast is rapidly increasing its top line on the back of increasing market share. However, the company’s rapid expansion is also increasing its S&M and R&D costs. Rising costs pose a concern for the company’s long-term profitability. TOST also faces stiff competition from other established players challenging its growth.Considering these factors, we recommend waiting for a better entry point for investors looking to enter the stock. We recommend investors to hold this Zacks Rank #3 (Hold) stock for now. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Just Released: Zacks Top 10 Stocks for 2025Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Atlassian Corporation PLC (TEAM): Free Stock Analysis Report Twilio Inc. (TWLO): Free Stock Analysis Report Cloudflare, Inc. (NET): Free Stock Analysis Report Toast, Inc. (TOST): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks