Shares of Toast (TOST 4.63%) gained a tasty 29.4% in February 2024, according to data from S&P Global Market Intelligence. The provider of cloud-based tools and supporting hardware for restaurant management services erased about five months of bearish market action by means of a fantastic earnings report.
Analyzing Toast’s holiday quarter by the numbers
Toast’s stellar gains hinged on its fourth-quarter earnings report on Feb. 15, which inspired a 17% price gain the next day.
The average Wall Street analyst had expected a net loss of $0.11 per diluted share and top-line revenues near $1.02 billion. The sales target was in the right ballpark, landing at $1.04 billion. Further down the income statement, Toast stumped the Street pros with a net loss of just $0.07 per share.
It wasn’t all medium-rare steak on a bed of garlic-roasted asparagus spears. Toast also announced a cost-cutting program that will drop roughly 550 names from the payroll, with most of the changes falling in the current quarter. That’s approximately 10% of the total workforce and a sharp reversal after adding more than 1,300 staff in 2023.
But after generating roughly $50 million in restructuring costs, Toast aims for cost savings of around $100 million per year. All told, many investors saw this move as a positive event that should amend some financial stress resulting from exaggerated hiring during the inflation-based economic crisis in recent years. To give the cost savings some context, Toast reported a net loss of $246 million in 2023.
Finally, the board of directors authorized $250 million of “opportunistic” share buybacks on the open market. It’s not a huge program, amounting to less than 2% of Toast’s current market cap, but it will still put some spare cash directly into the pockets of shareholders.
Tongue-twisting tips: How tasty is Toast’s stock today?
The buyback also demonstrates the leadership team’s confidence in better days ahead. The board is essentially saying that Toast’s stock looks undervalued, arguably making share repurchases a better use of cash than other spending channels.
Still, the company remains committed to rambunctious growth. Fourth-quarter sales rose 35% year over year, while the number of client locations increased by 35%. Looking ahead, CFO Elena Gomez said that the cost-cutting plan will help Toast invest in its “highest-conviction growth initiatives,” such as new service features and more aggressive sales pushes.
This innovator continues to impress me, and even the layoffs look reasonable right now. Toast’s point-of-sale systems and order-taking tablets pop up in both brand-new eateries and long-established favorite haunts in my neck of the Floridian swamps, and the same story is told in many pinpoint-targeted expansion markets around the country.
And the fast-growing tech stock isn’t even expensive, trading at just 3.5 times sales today. I’m sorely tempted to add some Toast to my Wall Street pantry, but first I’ll have to stop writing about it for a while. You, on the other hand, should be free to take action as soon as you’ve done your own homework on Toast and its stock.
Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Toast. The Motley Fool has a disclosure policy.
