Is TOST Stock Attractive as Growth Slows and Profitability Improves?

TOST Growth Is Strong but No Longer Accelerating

Toast reported first-quarter 2026 revenues of $1.6 billion, up 22% year over year. Subscription services revenues increased 28% to $268 million, while total locations rose 22% to about 171,000.

Gross payment volume also advanced 22% to $51.3 billion. The pace has become more normalized, with total revenue growth at 25% in parts of 2025, subscription services growth easing from the mid-30% range to the high-20% range and location growth moderating to the low-20% range.

Management’s full-year 2026 outlook reinforces that message. Toast expects recurring gross profit streams to grow 21% to 23%, below the 27% growth delivered in the first quarter.

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Toast’s Valuation Leaves Limited Near-Term Upside

TOST recently traded at $32.34, compared with a 6- to 12-month price target of $34. That leaves only $1.66 of potential appreciation, suggesting that much of the improved profitability story may already be reflected in the stock.

The valuation is not stretched on a relative sales basis. Toast trades at 2.05X forward 12-month sales, below its five-year median of 2.69X and well under the 3.81X multiple for its Zacks sub-industry, 6.13X for the technology sector and 4.87X for the S&P 500.

That discount helps, but it does not automatically create a bargain. With growth normalizing, investors may need stronger proof of durable margin expansion or renewed estimate momentum before assigning TOST a higher multiple.

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TOST Profitability Supports the Bull Case

Profitability is the clearest support for a more constructive view. In first-quarter 2026, Toast generated net income of $126 million, operating income of $110 million and adjusted earnings before interest, taxes, depreciation and amortization of $179 million.

Cash generation also improved. Operating cash flow was $132 million and free cash flow was $115 million, both up 67% year over year. Non-GAAP software-as-a-service gross margin exceeded 80% for the first time at 81%.

Management raised its full-year 2026 adjusted EBITDA guidance to $790 million to $810 million. That gives the bull case substance, especially for investors focused on operating leverage rather than revenue growth alone.

Toast’s Execution Risks Keep the Setup Balanced

Better profitability does not remove the execution risk. Hardware and professional services remained loss-making in the first quarter, with $39 million in revenues against $111 million of costs.

Those losses reflect onboarding investments, new-market support and tariff pressure. Management also plans to reinvest top-line outperformance into growth initiatives and internal AI tools, which can limit near-term margin upside.

Competition adds another consideration. Shift4 Payments FOUR also serves restaurants with payment processing and point-of-sale technology, while Lightspeed Commerce LSPD offers restaurant point-of-sale and payments capabilities. Their presence reinforces that Toast must keep converting product breadth into profitable customer growth.

Slower location and subscription growth could also constrain valuation expansion. If growth settles into a lower range before new markets and AI products contribute meaningfully, the stock may struggle to sustain a higher sales multiple.

TOST Scores Point to a Selective Approach

The bottom line is that TOST has a better earnings profile than it had in prior periods, but the setup still calls for selectivity. Profitability, cash flow and recurring gross profit growth are real strengths, while valuation upside and momentum remain less convincing.

The stock currently carries a Zacks Rank #3 (Hold). That aligns with a balanced risk-reward profile rather than a strongly bullish near-term call. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

TOST has a Growth Score of A, recognizing favorable projected earnings and sales expansion. Its Value Score of C is more neutral, while the Momentum Score of D points to weaker price and revision characteristics. The VGM Score of B offers some balance, but investors may want stronger upside, estimate revisions or price momentum before taking a more bullish stance.

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This article originally published on Zacks Investment Research (zacks.com).

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