Buying some more Toast
Made some moves in the ISV leader
Toast is one of my favorite companies:
Clear leader in their space with a strong moat
Secular growth trend tied to population growth, inflation and natural restaurant churn
No risk of AI disruption, and probably an AI beneficiary
While it’s down since its IPO, the market has started giving it a benefit of the doubt starting in 2023.
The only drawback with Toast is its valuation. Toast trades at a premium valuation that is baking in doubling and even tripling their store count locations over the next 5-7 years, as well as an increase in ARPU per location. This has been the main reason that Toast has been a small position in my portfolio (~3%) - they’re priced for perfection.
However, the recent 25% pullback makes it appealing to add to my position, and here’s why:
Growing TAM: A key bear argument against Toast has been that they’re close to saturation in their main market: sit down restaurants in the USA. While Toast is the clear leader and they are closer to saturation than ever before, during 2024-2025 Toast been able to show that they’re able to grow their TAM - they’re expanding into a new segment, retail locations, successfully. They’re also expanding internationally and showing good traction. Last but definitely not least, their upmarket GTM is showing great results with new wins (like Applebees) and importantly enterprise wins that include payment processing. A growing TAM means that growth can be sustained longer into the future than the bears and many analysts forecast.
Beating expectations: Toast has beat expectations for the past 2 years, growing above even the most bullish analyst forecast. Something is going RIGHT for this company. Their sales efficiency is improving in their highest density markets, expansion is going smoothly, SW and new value to restaurant owners is improving. This has led to the run up in the stock over the past year.
My best guess is that Toast been pulling back due to a general slow down in the QSR sector, fears of heightened competition + rich valuation. IMO this pullback is a good opportunity to ‘buy up’ following a very impressive 2025. Following this move, Toast still remains a small part of my portfolio, sub 5%, due simply to its high valuation.