Has Toast’s Rally Stalled After A 7.5% Slide And Lofty Valuation Multiples?

• If you are wondering whether Toast is actually a bargain at today’s prices or if the easy money has already been made, you are not alone. That is exactly what we are going to unpack.
• The stock has slipped recently, down about 1.1% over the last week, 8.0% over the last month and 7.5% over the past year, even though it is still up around 88.1% over three years.
• Much of the recent share price action has been driven by changing market sentiment toward high growth, software enabled payment platforms and how sustainable their growth and margins might be. Toast has stayed in the conversation thanks to ongoing product rollouts across restaurant operations, new financial services tools and partnerships that aim to deepen its ecosystem.
• On our checklist of six valuation tests, Toast only passes one, giving it a valuation score of 1 out of 6. We will look at what different valuation methods are really saying about the stock today and then finish with a more nuanced way to think about its true worth.

Toast scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Toast Excess Returns Analysis

The Excess Returns model looks at how much value Toast can create over and above the return that shareholders require, based on its profitability and growth in book value. Instead of focusing on cash flows, it asks whether each dollar reinvested in the business earns more than the company’s cost of equity.

For Toast, the starting point is a Book Value of $3.43 per share and a Stable EPS of $1.27 per share, derived from weighted future return on equity estimates from 9 analysts. With an Average Return on Equity of 22.62% and a Cost of Equity of $0.41 per share, the model calculates an Excess Return of $0.86 per share, meaning Toast is expected to generate meaningful value above its required return. Analysts also see Stable Book Value rising to $5.61 per share, based on forecasts from 5 analysts.

Combining these inputs, the Excess Returns valuation implies an intrinsic value of about $26.70 per share. With the model indicating the stock is roughly 32.2% above this level, Toast screens as clearly overvalued on this metric.

Result: OVERVALUED

Our Excess Returns analysis suggests Toast may be overvalued by 32.2%. Discover 907 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Toast.

Approach 2: Toast Price vs Earnings

For a business that is now generating positive earnings like Toast, the price to earnings, or PE, ratio is a useful way to gauge how much investors are willing to pay for each dollar of profit. A higher PE can be justified for companies with faster and more reliable earnings growth, while businesses with slower growth or higher risk typically deserve a lower, more conservative PE.

Today, Toast trades on a PE of about 76x, which is well above both the Diversified Financial industry average of roughly 13.6x and the broader peer group average of about 39.1x. On the surface, that suggests the market is pricing in very strong growth and relatively low perceived risk.

Simply Wall St also calculates a Fair Ratio for Toast of around 22.5x. This is the PE you might expect based on its growth outlook, profitability, risk profile, industry and market cap. This is more informative than a simple industry or peer comparison because it adjusts for the specific characteristics of Toast rather than assuming all companies are alike. With the current PE sitting far above this Fair Ratio, Toast again screens as expensive on a multiple basis.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1448 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Toast Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple way to turn your view of Toast into a story that links its business drivers, your assumptions for future revenue, earnings and margins, and a resulting fair value estimate you can compare to today’s share price. On Simply Wall St’s Community page, millions of investors use Narratives to write down their thesis, plug in expectations, and instantly see how their story translates into numbers. This makes it easier to decide whether Toast looks buyable when Fair Value sits above the current Price, or stretched when it falls below. Because Narratives are updated dynamically as news, earnings, and guidance change, your fair value automatically evolves with the latest information. For example, one Toast Narrative might lean bullish and see upside to around $60 per share based on faster market share gains and margin expansion. A more cautious Narrative could land closer to $36 with slower growth and greater competitive pressure. By comparing these live, side by side, you can quickly see where your own view fits on the spectrum and decide how you want to proceed.

Do you think there's more to the story for Toast? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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