What Would It Take for Investors to Pay More for Toast Stock?

Toast reported roughly 23% year-over-year revenue growth to $1.91 billion and a 92.5% increase in net income to approximately $154 million last quarter, while annualized recurring revenue rose 25% to $2.4 billion. The company added about 9,500 locations in Q2 and is expanding payments beyond restaurants, initially launching with two gas-station customers. Despite these growth metrics, Toast shares remain down nearly 11% year to date and trade at about 20x expected 2026 earnings, which the article argues may undervalue its earnings trajectory.

Analysis

TOST’s rerating hinges less on headline location additions than on proof that incremental gross profit is shifting toward software and payments attach rather than lower-margin hardware and incentives. The key underwriting variable is contribution margin per location: sustained expansion would support a premium to payments processors such as FIS/FISV, while flat unit economics would reveal that growth is being purchased through sales expense. Investors should also normalize for stock-based compensation and dilution before treating the stated forward P/E as evidence of a discount.

The gas-station adjacency is strategically attractive but not yet investable as a revenue driver. Forecourt payments require integrations with pump controllers, fuel loyalty, age-restricted-item workflows and incumbent POS estates; implementation cycles may be materially longer than restaurants. If successful, however, this creates a less discretionary payments mix and opens a wedge into convenience-store software, pressuring legacy vertical POS vendors and potentially broadening TOST’s terminal-value multiple over 12-24 months.

Near term, the stock remains exposed to restaurant same-store-sales deceleration, because merchant closures and lower payment volume would impair both net adds and payments monetization simultaneously. The contrarian point is that diversification will not reduce cyclicality until non-restaurant verticals become material; early pilots can increase operating expense before contributing revenue. A credible 1-3 month catalyst is management quantifying non-restaurant pipeline, attach rates and payback periods, rather than simply announcing additional vertical launches.

Key Decisions for Investors

• Initiate a modest long TOST only after the next earnings release confirms stable or improving adjusted EBITDA/contribution-margin guidance alongside continued location growth; target a 20-30% upside over 6-12 months from multiple expansion, with a 10-12% stop if payment-volume growth or margin guidance is cut.
• Prefer a relative-value expression: long TOST / short OLO over 6-12 months. TOST has greater payments monetization and cross-sell optionality, while OLO is more dependent on restaurant digital-ordering budgets; exit if TOST’s software attach rate stalls or OLO demonstrates sustained margin inflection.
• Set an event-driven watch item for disclosure of gas/convenience-store deployment economics: do not capitalize this adjacency until management provides customer count, implementation duration, gross-profit contribution and retention data. A meaningful sales-and-marketing step-up without these metrics is a negative signal.
• Monitor restaurant traffic and closure data monthly. A broad deterioration in independent restaurant demand would challenge the core thesis before reported revenue does; reduce exposure if payment-volume growth decelerates materially for two consecutive quarters.