The Sell-Off Hammered This Growth Stock 40%. Here's Why I'm Buying.
Key Points
Toast has sold off as it is a the intersection of three things investors have become worried about.
Nothing has fundamentally changed, and the company's strong growth opportunity remains unchanged.
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If you made a Venn diagram of three things investors are currently worried about -- payments, the consumer, and software -- Toast (NYSE: TOST) would be right in the center. Given this, it's not surprising that the company's stock has had a rough go. The stock is off by more than 40% from its 52-week high and down nearly 20% on the year.
However, this is a growth stock you want to own that is now trading at an attractive valuation.
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A long runway of growth is still ahead
Toast has made a name for itself as one of the top payment and technology solutions providers for the restaurant space. The company's core customers are small-to-medium-sized (SMB) restaurant owners who have come to rely on it not just for payment processing but also for its suite of solutions to help them run and make their businesses more profitable. At the end of the day, the more Toast can help its customers drive sales, the more it benefits because it takes a small percentage of sales through payment processing.
Given this, Toast is not immune to a slowdown in restaurant spending, as 70% of its gross profits in 2025 came from payment processing. However, even against a tough consumer spending environment, the company was still able to grow its gross payment volumes by 22% to $51.4 billion in Q4. It also increased its total number of locations by 22% to 164,000.
Toast continues to make solid inroads in its core, U.S. SMB restaurant market, but it is also expanding into adjacent areas. National chains have started to use its solution, while it's also expanded to hotels, bakeries, coffee shops, internationally, and even grocery stores. With an estimated 700,000 to 1 million restaurants in the U.S. alone, many of which are on legacy systems, Toast has plenty of growth runway ahead.
Image source: The Motley Fool.
On the software front, as a company specifically focused on the restaurant industry, Toast is pretty isolated from artificial intelligence (AI) disruptions. This is a very highly fragmented industry that is not very tech-savvy. As such, SMB restaurants aren't going to use AI to code their own solutions.
Meanwhile, Toast has embraced AI to provide actionable insights to its restaurant customers, assist with marketing, automate tasks, and even optimize menus. This should add another revenue stream as the company makes money on each module its customers add.
Overall, Toast is a great stock to own that is on sale following its sell-off this year. Its long-term growth runway remains intact, and it doesn't look like an AI disruption candidate.
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Geoffrey Seiler has positions in Toast. The Motley Fool has positions in and recommends Toast. The Motley Fool has a disclosure policy.
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