Toast Reports Strong Q4 Amid Valuation Concerns, Reinforcing Cautious Stance

What happened

Toast, Inc. delivered solid Q4 2025 results, with EPS beating estimates by $0.04 and full-year revenue growing 24%, alongside margin expansion and a $500 million share repurchase program. However, a Seeking Alpha article reiterating a buy rating contrasts sharply with DeepValue's 'WAIT' recommendation, which highlights the stock's premium valuation and crowded ownership. DeepValue's analysis shows Toast trades at a P/E of ~60x and EV/EBITDA >140x, pricing in sustained high growth that may not materialize given management's 'over 20%' guidance for 2026. The report underscores risks such as potential slowdowns in recurring gross profit growth, SMB cyclicality, and competitive pressures that could erode the bullish narrative. Thus, while operational execution is impressive, investors face a mismatch between strong fundamentals and already elevated expectations.

Implication

Toast's latest earnings demonstrate its ability to grow revenue and expand margins, supporting the bull case for its integrated restaurant platform. Yet, with valuation multiples embedding 20%+ growth, the stock offers minimal margin of safety if execution falters or growth decelerates toward guidance levels. DeepValue advises waiting for a pullback to ~$24 or clearer signs of recurring gross profit exceeding 25% growth before considering a buy, given the crowded ownership and premium pricing. Key monitoring points include Q1 2026 guidance on growth, ToastIQ adoption metrics, and progress on enterprise rollouts like Applebee's. Overall, the risk-reward remains unfavorable for new positions, and existing holders should trim above $36 or reassess if growth trends weaken.

Thesis delta

The positive Q4 results confirm Toast's operational strength but do not shift the core thesis, as the stock remains overvalued with limited upside in the base case. The investment call stays 'WAIT' until either a lower entry price emerges or recurring gross profit growth sustainably exceeds 25%, aligning with market expectations rather than conservative guidance.