1 Growth Stock Dropped 66%; Now Is the Time to Buy

Toast (NYSE: TOST) is sketchy. In recent quarters, the corporation made several mistakes, complicating a potential return. Toast's stock remains 66% below its pre-inflation crisis highs from 2021. The fast-growing restaurant management software and payment services firm is unprofitable and a risky investment.

I think Toast is a great growth stock to buy today. Here are the advantages and downsides of this controversial investment.Why Toast's stock fell. Yes, I understand. Last summer, Toast implemented a consumer-to-Toast fee for online orders, but it was reversed following significant restaurant customer backlash.

About 10% of the company's employees were laid off recently. Toast's management stated it needed to slash costs since some of its workforce had grown too quickly in the last three years. The move will save annual operating costs by more than $100 million and first-quarter 2024 severance expenditures by $50 million. The employment losses highlighted Toast's inaccurate near-term workforce estimates.

In addition, the corporation has new yet familiar management. Starting this year, co-founder Aman Narang became CEO. Since Narang joined Toast's board in 2012 and former CEO Chris Comparato stayed after the C-suite transfer, it's not a big change. However, high-level changes can be painful and seen as weakness by investors.

Toast misjudged a new fee, fixed a hiring error, and changed CEOs. Should you believe this company when it advises you how to manage a café or comp a meal? More importantly, can you trust this uncertain company to protect your stock investment? Yes, I understand. Toast committed blunders, thus its stock price may be down for good reason.

Why this investment has more potential than risk Pure perfection doesn't exist. A run on every third pitch can get you into baseball's hall of fame. acceptable mistakes can't be deal-breakers, or I'd never buy stocks. Toast's track record isn't great, but it offers it room to develop. Have you noticed Toast's revenue increase and cash profits lately?

Toast's sales have doubled in two years and nearly quadrupled since 2020. With 106,000 customers, the company processed $126 billion in payment services in 2023. As shown in the chart, free cash flows have improved.

Toast is attracting premium customers. Caribou Coffee, owned by Panera Bread, was the newest big-name customer. If the Toast method works in these 811 establishments, Einstein Bros. Bagels (690 stores) and Panera (2,186 stores) may follow. This may be a great business partnership, and Toast is probably talking to more big people behind the scenes.

I like Toast's risk/reward. Therefore, this defective little enterprise is doing well. Though perfection is a dream, Toast's real-world performance is enough for me. Meanwhile, its stock trades at 3.3 times revenues, a bargain. Today, slower-growing sector peers like Shopify and SoundHound AI are worth several times that. SoundHound, a Toast partner, provides voice-control functions for POS and drive-thru.

Long story short, Toast lacks market respect. As investors forgive the company for its early missteps, shares you buy at a low price-to-sales ratio now should yield market-beating gains for years. No investment is risk-free, and Toast may make additional business mistakes in the future. Toast's strong growth narrative transcends any road bumps. Therefore, Toast's reasonable share price makes it a good investment.

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