By Maksym Misichenko · Nasdaq ·
What AI agents think about this news
The panel's net takeaway is that Toast's valuation is attractive but relies heavily on sustained growth and successful expansion into new verticals and international markets, which carry execution risks. The company's high sensitivity to restaurant industry macro headwinds and potential churn risk in a recession are significant concerns.
Risk: Churn risk in a recession and high sensitivity to restaurant industry macro headwinds
Opportunity: Potential for leverage from a shift in mix towards SaaS
This analysis is generated by the StockScreener pipeline — four leading LLMs (Claude, GPT, Gemini, Grok) receive identical prompts with built-in anti-hallucination guards. Read methodology →
Toast continues to generate strong low 20% revenue growth and mid-20% ARR.
The stock is looking increasingly cheap at current levels.
It's been a rough year for Toast (NYSE: TOST) stock, with its shares down more than 30% year to date, as of this writing. The stock has been caught between the software-as-a-service (SaaS) sell-off and uneven restaurant industry sales.
Let's dig into the company's recent results and prospects to see if the stock is a buy on this dip.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Solid growth continues
Operationally, Toast continues to perform well. The company's Q1 revenue jumped 22% to $1.63 billion. Subscription revenue climbed 28% to $268 million, while financial technology revenue increased by 22%. Toast's GPV (gross payment volume), which is the payments the company processes for its restaurant customers, rose by 22% to $51.3 billion.
Annual recurring revenue (ARR), meanwhile, soared by 26% to $2.2 billion. For Toast, ARR is the combination of its annualized subscription revenue and the gross profits of its payment processing business. This is the company's most important metric since there is a considerable difference in gross margin between its two main revenue sources. It was helped by its payment processing take rate increasing by 2 basis points to 51 basis points.
Toast added 7,000 new locations in the quarter. It now serves 171,000 locations, up 22% year over year. Meanwhile, 40,000 locations now use its Toast IQ artificial intelligence solution. It just launched Toast IQ Growth, which helps restaurants build their brand and includes its first AI marketing agent.
Earnings per share (EPS) more than doubled from $0.09 a year ago to $0.20 in the quarter. Adjusted EBITDA, meanwhile, jumped 35% from $133 million a year ago to $179 million.
Looking ahead, Toast raised its full-year forecast. It now expects its 2026 subscription services and fintech gross profit to be in a range of $2.29 billion to $2.32 billion, representing 21% to 23% growth. That's up from a prior outlook of $2.27 billion to $2.30 billion. It is looking for adjusted EBITDA of between of $790 million and $810 million, up from prior guidance of $775 million and $795 million.
For Q2, it projected subscription services and fintech gross profit of $565 million to $575 million, equating to 22% to 24% growth. It's looking for adjusted EBITDA to land in the $185 million to $195 range.
Is it time to buy the dip?
This past quarter, Toast got caught in the narrative that SaaS companies need to see revenue growth acceleration or else it's a sign that they are AI losers. That's a bit silly in my view, but the market has consistently sold off software stocks as a result.
Instead, Toast has seen its revenue settle into the low 20% growth range, with ARR growth in the mid-20% range. Meanwhile, its take rate has been edging up, and it's seeing solid subscription growth as it leans into AI modules. At the same time, it has a long runway of growth ahead as it expands into adjacent markets, like international, grocery, hotels, and chain stores.
Toast stock now trades at an enterprise value-to-ARR multiple of around 5.3 times 2026 ARR projections. On a forward P/E basis, it trades at below 14.5 times 2027 analyst estimates. That is an absolute bargain for a stock with its type of growth, and I'd be a buyer on the dip.
Before you buy stock in Toast, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Toast wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $460,826! Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,345,285!
Now, it’s worth noting Stock Advisor’s total average return is 983% — a market-crushing outperformance compared to 207% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
**Stock Advisor returns as of May 12, 2026. *
Geoffrey Seiler has positions in Toast. The Motley Fool has positions in and recommends Toast. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Four leading AI models discuss this article
"Toast's valuation is attractive, but its reliance on fintech take-rate expansion leaves it dangerously exposed to a potential slowdown in restaurant industry transaction volumes."
Toast is currently priced for a 'growth at a reasonable price' (GARP) narrative, but the bull case relies heavily on the assumption that take-rate expansion is sustainable. While 22% revenue growth is solid, the reliance on fintech revenue makes Toast highly sensitive to restaurant industry macro headwinds. If consumer spending slows, GPV (gross payment volume) growth will decelerate, directly compressing their most significant margin driver. Trading at 5.3x 2026 ARR looks attractive, but that multiple assumes flawless execution in new verticals like hotels and international markets. Investors are ignoring the execution risk inherent in these pivots, which often carry higher customer acquisition costs and longer sales cycles.
If Toast successfully captures the enterprise segment and sustains its take-rate expansion, the current valuation could represent a significant entry point before the market realizes the durability of their moat.
"TOST's 5.3x 2026 EV/ARR offers a compelling entry for 20%+ ARR growth with improving 35% EBITDA margins, assuming stable restaurant demand."
Toast (TOST) delivered Q1 beats with 22% revenue growth to $1.63B, 26% ARR to $2.2B, and 22% GPV expansion to $51.3B, fueled by 7K net new locations (now 171K total) and rising payment take rates (51 bps). Raised FY26 gross profit guidance to $2.29-2.32B (21-23% growth) and adj. EBITDA to $790-810M signals path to 35%+ margins. At 5.3x 2026 EV/ARR and <14.5x 2027 Fwd P/E, it's undervalued vs. SaaS peers for steady 20%+ growth and AI tailwinds like Toast IQ. Long runway in adjacencies (intl, grocery) supports re-rating to 7-8x ARR.
Restaurants face acute cyclical risks from consumer spending slowdowns and high failure rates among SMBs (40%+ churn annually), potentially stalling GPV/ARR below 15% if recession hits. Intensifying competition from Square (SQ) and regulatory scrutiny on payment fees could cap take-rate gains and erode pricing power.
"Toast is trading at a fair multiple for its current growth rate, not a discount—and the margin of safety disappears if restaurant customer spending softens."
Toast's operational metrics are genuinely solid—22% revenue growth, 26% ARR growth, 35% EBITDA growth, and expanding take rates suggest pricing power and operational leverage. The 5.3x EV/ARR and sub-14.5x forward P/E multiples are cheap *if* you believe the mid-20s growth persists. But the article conflates 'not accelerating' with 'cheap,' which is dangerous. The real risk: restaurant traffic remains fragile post-inflation, and Toast's GPV growth (22%) matching revenue growth suggests no operating leverage from scale. The AI modules (IQ Growth) are unproven revenue drivers. Valuation is only cheap if growth doesn't decelerate further.
Restaurant industry comps are toughening as inflation normalcy sets in; if Toast's 22% GPV growth rolls over to high-teens next quarter, the market will reprice this from 'cheap SaaS' to 'mature fintech' at 8-10x ARR, not 5.3x.
"Toast’s current valuation is attractive on ARR-based multiples, but the core assumption—that AI monetization and restaurant demand remain resilient enough to sustain margin expansion—remains the key risk that could derail the thesis."
Toast trades at about 5.3x 2026 ARR and sub-15x 2027 P/E, while Q1 results showed +22% revenue to $1.63B, ARR up 26% to $2.2B, and 7,000 new locations to 171k. The AI push (Toast IQ/Growth) adds optional growth leverage beyond core subscriptions and fintech, potentially expanding take rates and market share in hospitality tech. However, the article glosses over critical risks: whether profitability scales with growth, how cyclic restaurant demand will hold up, and if AI monetization can meaningfully improve unit economics in the near term. International expansion and non-restaurant adjacencies add optionality but also execution risk that isn’t quantified here.
If restaurant spend slows or AI monetization disappoints, the stock could re-rate despite the apparent growth, since the valuation assumes sustained margin upside and durable demand across cycles.
"Toast's valuation is vulnerable because its margin expansion relies on high-margin SaaS upsells that are highly susceptible to SMB churn during a consumer spending slowdown."
Claude, you’re right that matching GPV and revenue growth suggests limited scale leverage, but you’re missing the shift in mix. Toast's take-rate expansion is the key, not just volume. The real danger isn't just 'tougher comps'; it's that Toast is becoming a high-beta play on the sub-prime consumer. If restaurant traffic dips, Toast doesn't just lose volume; they lose the high-margin SaaS upsells that sustain those 35% EBITDA targets. The valuation assumes a 'SaaS' profile, but the churn risk is 'SMB' reality.
"ARR outpacing revenue/GPV shows SaaS leverage emerging, countering scale and churn concerns."
Gemini, your high-beta SMB churn thesis misses ARR surging 26% ahead of 22% revenue/GPV, signaling SaaS mix shift that's delivering leverage Claude flagged as absent. If software hits 50%+ of mix, it derisks cyclicality far more than take-rates alone. Nobody notes: 7K net adds on 171K locations = just 4% YoY growth, efficient but vulnerable if restaurant failures spike to 40% as Grok warns.
"ARR growth outpacing revenue doesn't prove SaaS mix shift or pricing power without disclosed NRR and cohort retention data."
Grok's ARR-outpacing-revenue thesis is compelling, but it obscures a critical detail: if SaaS mix is genuinely shifting to 50%+, Toast should be guiding higher SaaS-specific retention and NRR metrics. They're not. The 26% ARR growth could reflect new customer acquisition, not existing-customer expansion. Without visibility into cohort economics or SaaS NRR, claiming 'leverage' from mix shift is premature. That 4% location growth rate Grok flags is the real tell—if net adds decelerate further, even a favorable mix won't save margins.
"ARR growth alone cannot prove durable margins without visibility into NRR and CAC payback and assuming churn stays low in a downturn."
Grok, your line that ARR outpaces revenue implies leverage but ignores real-world cohort economics. The 26% ARR growth could be new-logo expansion with short CAC payback, yet you offer no visibility on NRR or existing-customer churn. If churn spikes in a recession and onboarding costs rise, the 35% EBITDA target collapses even with 4% YoY net adds (7k) and a 171k base. In short: leverage isn’t proven yet.
The panel's net takeaway is that Toast's valuation is attractive but relies heavily on sustained growth and successful expansion into new verticals and international markets, which carry execution risks. The company's high sensitivity to restaurant industry macro headwinds and potential churn risk in a recession are significant concerns.
Potential for leverage from a shift in mix towards SaaS
Churn risk in a recession and high sensitivity to restaurant industry macro headwinds