Block Stock or Toast Stock?

Forbes

08-08-2025

Question: Why would you pay 2x revenues for Block stock (NYSE:XYZ) – when you can purchase Toast stock (NYSE:TOST), a cloud-based platform for restaurant management, at 5x? You wouldn't, particularly when three significant factors—growth, profitability, and financial standing—indicate that Toast has a more robust financial base and a brighter future.
Is Toast A Reliable Investment?
While Toast may not be a conventional 'safe haven' investment, evaluating its historical performance during market disruptions is crucial. For instance, Toast's stock suffered substantial drops of 80% during the inflation shock of 2022 and has yet to regain its pre-crisis levels. This indicates that it is not exempt from market fluctuations.
Nonetheless, the potential for long-term growth driven by AI makes Toast a compelling investment, particularly in light of its recent achievements. The firm generated $1.9 billion in Annual Recurring Revenue (ARR) and experienced a 35% year-over-year increase in recurring gross profit in the most recent quarter.
AI-Driven Solutions and Market Position
Although many businesses provide point-of-sale solutions, Toast differentiates itself with its AI-driven advancements such as ToastIQ and Toast Now AI. These technologies utilize Toast's distinct restaurant data to deliver crucial insights to its clients. The combination of advanced AI and a comprehensive restaurant management platform positions Toast as a frontrunner in the restaurant technology AI sector.
Future Growth and Revenue
Toast's solid market position is reinforced by its extensive customer base. The company could scale up to 200,000 locations by 2026, up from the current 148,000. The complete rollout of 'Toast Now AI' is anticipated to boost average revenue per user, further enhancing growth within the expanding foodservice technology sector. The company's top line is projected to expand at a 20% average annual rate over the next few years. Additionally, see – The Trade Desk: Buy TTD Stock Now At $65?
What Are the Potential Risks?
Several significant risks could impact Toast's growth and investment attractiveness. The company operates in a volatile sector and encounters considerable threats from fierce competition and economic instability.
Toast faces strong competition from established point-of-sale (POS) players and newcomers like DoorDash, which is venturing into the POS space. This could threaten Toast's collaborations and customer relationships. Furthermore, the company's dependency on the restaurant sector renders it highly susceptible to economic downturns. In the event of an economic slump, for instance, restaurant revenues typically decline, which would directly diminish technology spending and consequently, Toast's revenue.
Operational hazards include the risk of security breaches and deteriorating profit margins due to rising competition. The company also contends with challenges in its international expansion efforts, where local rivals are already well-entrenched.
The high turnover rate and frequent closures in the restaurant industry mean Toast must continually attract new customers just to sustain its growth. Additionally, macroeconomic variables like inflation could dampen both consumer spending and business investment in new technology, adding further pressure on the company.
Overall, despite TOST stock being currently pricier than XYZ stock, it appears to be the more appealing investment option. However, investors should meticulously assess the associated risks before concluding. Note that there always exists a significant risk when investing in a single stock or a limited number of shares. Consider Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has demonstrated a history of comfortably outperforming the S&P 500 over the previous 4-year span.Why is that? As a collective, HQ Portfolio stocks delivered superior returns with reduced risk compared to the benchmark index; less of a turbulent experience, as demonstrated in HQ Portfolio performance metrics.