After a banner year in 2024, the S&P 500 is starting to make a steady climb in 2025. It’s up 3% this year, and some of its largest components, like Apple and Amazon, have already reported fourth-quarter earnings. But Nvidia and Microsoft are slated to release earnings on Feb. 26 and Feb. 28, respectively, and their results could highly affect how the market makes its next moves.
Long-term investors know that while it’s important to stay on top of trends, it’s even more important to stay focused on what the market’s going to look like five, 10, and 20 years down the line. No matter what’s going on today, and how different the landscape might look in a few years, the market is likely to reward patient investors.
Toast (TOST 0.72%) is a relatively small and niche company that’s gaining admirers. Its stock is up 83% over the past year, and the long-term opportunity looks compelling. Here are three reasons to buy it today.
1. It has a massive market opportunity
Toast is an artificial intelligence-driven, cloud-based company. In other words, its model is all the rage now. It serves the restaurant industry with hardware and software solutions that make restaurants much easier to run, and it’s growing quickly.
There are several ways it’s achieving growth, and they all contribute to an exponentially increasing opportunity. For one thing, customers are joining the platform at a high rate. Toast added 7,000 new locations in the 2024 third quarter for a total of 127,000. It benefits from a flywheel effect, where as its platform becomes the standard for restaurants, more locations join. It has a robust referral network, and 20% of new locations come from referrals, adding to the flywheel effect.
It’s constantly upgrading its platform with new features and tools that improve the user experience. For example, it has rolled out restaurant-specific capabilities that target categories like fine dining and bakeries.
Toast sees a $1 trillion-plus opportunity in U.S. restaurants, where it estimates that it has about 13% of the market by locations. That leaves a lot more to capture, but it does face competition from similar companies — ones that target the restaurant industry, like Aloha, and ones that target the broader small business space, like Block‘s Square seller’s business.
Toast is also branching out to international regions, where it has 2,000 locations and sees a near-term opportunity of 280,000. Over a longer period, the full opportunity would be 15 million locations worldwide, leaving it with plenty of room to grow over many years.
Finally, it recently launched a new product aimed at the grocery space, where it’s targeting 220,000 locations. It already has 1,000 live, and this business is just getting started.
2. It’s becoming profitable
Management charts its top-line progress with annualized recurring run rate (ARR), which increased 27% year over year in the third quarter. Because Toast has a subscription model, it has reliable, recurring monthly sales and generates client loyalty. Although ARR has decelerated over the past few quarters, as it increases, Toast is becoming profitable.
Image source: Toast.
Net income was $56 million in Q3 2024, up from a $31 million loss in the prior year. Management is guiding for increases in gross profit and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) in Q4 and the full year, and it raised guidance for both after the third quarter. Wall Street is expecting $0.17 in earnings per share (EPS) in the fourth quarter.
3. The price is right
Even with its strong stock gains, healthy growth, and turn to profits, Toast stock still trades at a reasonable valuation of 33 times forward earnings and less than 5 times trailing 12-month sales.
Between its many opportunities and fresh and growing profits, I expect Toast to expand its business and reward investors for years. At this price, it’s a great time to buy.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has positions in Apple. The Motley Fool has positions in and recommends Amazon, Apple, Block, Microsoft, Nvidia, and Toast. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
