Toast Plunges 17% in a Month: Should You Hold or Fold the Stock?

Core Viewpoint - Toast Inc. (TOST) has experienced a significant decline in stock price, dropping 16.8% over the past month, which is worse than the broader market and its industry peers [1][2]. Group 1: Market Context and Challenges - The decline in TOST's stock is attributed to broader market weaknesses and negative investor sentiment due to escalating trade war concerns, particularly the increase in tariffs to 25% on imports from China, Canada, and Mexico [3]. - The National Restaurant Association has indicated that the 25% tariff hike could lead to a 30% profit loss for average independent restaurant operators, potentially costing the restaurant industry up to $12.1 billion [4]. - TOST is facing customer churn among smaller restaurant clients, which poses a risk to its business [4][5]. Group 2: Business Strategy and Growth - In response to macroeconomic pressures, TOST is shifting its focus towards enterprise restaurants and expanding into new markets, including the convenience store sector [6][7]. - The company has added 7,000 locations in Q4 2024, reaching a total of 134,000 locations, reflecting a 26% year-over-year growth [7]. - TOST's annual recurring revenues are increasing due to a larger share of repeat customers, driven by its suite-based packaging model that encourages broader platform adoption [8]. Group 3: Innovation and Future Prospects - TOST is enhancing its offerings with AI-powered marketing suites and restaurant management systems, which are expected to improve guest experience and operational efficiency [9]. - The Zacks Consensus Estimate for TOST's 2025 revenues is $6.07 billion, indicating a growth of 22.3% year-over-year, while earnings are expected to reach 92 cents per share, reflecting a staggering growth of 2,966.7% year-over-year [10]. - TOST has consistently beaten earnings estimates in three of the last four quarters, with an average surprise of 197.4% [10]. Group 4: Valuation and Investment Recommendation - The recent decline in TOST's stock price has resulted in attractive valuations, with a forward 12-month price-to-sales (P/S) ratio of 2.62, significantly lower than the industry average of 5.70 [11]. - Despite facing near-term challenges, TOST's long-term prospects remain positive due to its growth in location additions and ongoing innovations [13]. - The recommendation is to hold TOST stock for now, given its attractive valuation and potential for future growth [14].