Toast Stock Up 22% YTD: Does the Rally Have More Room to Run?

Core Insights - Toast, Inc. (TOST) shares have increased by 21.6% year to date, outperforming the Internet Software market and the Zacks Computer & Technology sector, which grew by 14.6% and 8.4% respectively, while the S&P 500 returned 5.6% in the same period [1] Company Performance - TOST closed at $44.34, down 0.3% recently, and is near its 52-week high of $46.57 [4] - The company registered over 6,000 net locations in Q1 2025, totaling approximately 140,000 customer locations globally, reflecting a 25% year-over-year growth [7] - Toast achieved an adjusted EBITDA margin of 32%, exceeding its medium-term target of 30-35%, attributed to disciplined expense management [8] - Free cash flow turned positive at $69 million, compared to a $33 million loss a year ago [9] Growth Opportunities - Toast is expanding in the U.S. SMB restaurant market, with significant wins like Applebee's and Topgolf, and has only 10% penetration in its total addressable market of 1.4 million locations, indicating substantial long-term growth potential [5] - The company is targeting to exceed 10,000 locations by the end of 2025 across new growth areas: enterprise, international, and food & beverage retail [6] - Toast projects a 26% growth in fintech and subscription gross profit for 2025, with an estimated adjusted EBITDA of $550 million and a 31% margin, up five percentage points from 2024 [10] Challenges - The decline in Gross Payment Volume (GPV) per location poses a challenge, with GPV per location down 3% year-over-year, despite overall GPV increasing by 22% to $42 billion in Q1 [12] - The restaurant industry remains sensitive to consumer spending, labor inflation, and supply-chain volatility, which could impact TOST's performance [11] - TOST's stock is considered expensive, trading at a price/book multiple of 13.20X compared to the industry's 6.57X, indicating a stretched valuation [16] Investment Outlook - Despite headwinds, Toast's focus on expanding its addressable market and strategic investments in AI support long-term upside [17] - The company is currently rated Zacks Rank 3 (Hold), suggesting long-term investors should maintain their positions while new entrants may benefit from waiting for a more favorable entry point [18]