Toast, Inc. (NYSE:TOST) Stock Rockets 27% But Many Are Still Ignoring The Company

Toast, Inc. (NYSE:TOST) shares have continued their recent momentum with a 27% gain in the last month alone. Notwithstanding the latest gain, the annual share price return of 8.4% isn't as impressive.

In spite of the firm bounce in price, there still wouldn't be many who think Toast's price-to-sales (or "P/S") ratio of 3x is worth a mention when the median P/S in the United States' Diversified Financial industry is similar at about 2.6x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Toast

What Does Toast's Recent Performance Look Like?

With revenue growth that's superior to most other companies of late, Toast has been doing relatively well. Perhaps the market is expecting this level of performance to taper off, keeping the P/S from soaring. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Toast.

Is There Some Revenue Growth Forecasted For Toast?

Toast's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Retrospectively, the last year delivered an exceptional 42% gain to the company's top line. Spectacularly, three year revenue growth has ballooned by several orders of magnitude, thanks in part to the last 12 months of revenue growth. Accordingly, shareholders would have been over the moon with those medium-term rates of revenue growth.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 22% per annum over the next three years. With the industry only predicted to deliver 9.3% each year, the company is positioned for a stronger revenue result.

With this in consideration, we find it intriguing that Toast's P/S is closely matching its industry peers. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Toast's P/S?

Toast's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Despite enticing revenue growth figures that outpace the industry, Toast's P/S isn't quite what we'd expect. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Toast you should know about.

If you're unsure about the strength of Toast's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.