My one, of two SaaS recovery bets – TOST, a restaurant tech leader

In Feb I bought into Toast (TOST), at about $25 cost average and am journaling my thesis here for transparency

It's a bet on growth, with full understanding that the risk of recession looms which might hurt the company.

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WHAT TOAST ACTUALLY DOES

Running a restaurant is chaotic and messy. You've got orders coming in from the front, staff scheduling in the back, payments to process, inventory to track, and payroll to run. Toast is the platform for all the fragmented processes that a cafe or restaurant has (e.g staffing, payments, payroll, inventory, analytics). As an owner, you get to focus on your core value: providing great food and service.

But, it's still a SaaS, is there hope for it?

The core product is their point-of-sale system, which is vertically integrated. Toast handles payments, online ordering, DoorDash and Uber Eats integrations, inventory tracking, staff scheduling, tip distribution, and payroll. As an owner, you stop managing software and start managing your restaurant. Toast as a software is relatively protected as it requires a multi-million dollar investment even with AI to spin up all these services and catch up to all the edge cases, bug fixes and embedded workflows that Toast has created, and that's on top of their enterprise security and low latency

THE PRODUCT IS STICKY & WHY CUSTOMERS STAY

Once a restaurant is on Toast, leaving is painful. You'd have to retrain every employee, migrate your data, rebuild your integrations, and start over. That friction is intentional and it's Toast's biggest competitive advantage.

I browsed Reddit for anecdotal feedback and I think the reviews tell the story better:

"I love Toast… one of the real kickers is all of the extras and integrations."

And from a multi-location owner:

"I have 2 restaurants on Toast, 1 on Clover, 1 on Lightspeed. Toast is by far the most user friendly."

The anecdotal evidence is qualitative, now let's move to the quantitative: Toast now sits in 164,000 locations and processed $195B in payments in FY2025. The bigger the network gets, the more data Toast has to train its AI tools:

• predictive analytics
• menu recommendations
• staffing suggestions

This makes the platform more valuable, which attracts more restaurants which in essence is the the flywheel. Toast becomes an ever-present partner during the every day chaos for the restaurant manager and onwer.

THE NUMBERS

Toast had a strong 2025.

• Revenue hit $6.2B, up 24% year over year.
• GAAP net income came in at $342M compared to just $19M the year before.
• Adjusted EBITDA more than doubled to $633M.

Growth saw a slight slowdown from 26% to 20-24% (depending on the metric you look at) but the market overly punished it. At $29 a share and a $17B market cap, you're paying ~2x forward Price-to-sales & ~20x Price-to-earnings.

As the great investor Peter Lynch has said: 

"Because of compounding, a 20 percent grower with a P/E of 20x is a better investment than a 10 percent grower selling at a P/E of 10x."

BULL CASE

Three policy tailwinds from the current administration are worth watching for Toast specifically. The no-tax-on-tips policy directly improves pay for servers and kitchen staff. In an industry where turnover is brutal and scheduling is a constant headache, anything that improves retention has real operational value for restaurant owners and makes Toast's payroll and scheduling tools more sticky.

Lower energy costs from deregulation matter more for restaurants than most businesses. Kitchens run hot, refrigeration runs constantly, and energy is one of the largest overhead line items. If utility costs fall, margins improve and marginal restaurants stay open instead of closing which protects Toast's existing location base. But the Iran conflict is totally nullifying this tailwind, if we don't return to normalcy, this becomes a headwind/bear case.

Any broad consumer stimulus, whether a tax rebate or direct payment, puts more discretionary dollars in people's pockets. Restaurants are one of the first places that money goes. More dining spend means more GPV flowing through Toast's payment rails, which is a direct revenue driver.

THE BEAR CASE

The recession risk is REAL and it's the biggest one. Toast's revenue is tied to restaurant spending, which is tied to consumer confidence. If the economy slows, restaurants close, new locations stop signing, and that 24% growth rate compresses fast. The business is fundamentally CYCLICAL even if the platform is sticky.

Competition is fierce and well-funded. Clover, Square, Lightspeed, and Shift4 are all pitching the same restaurants.

The sunk cost dynamic works in Toast's favor once a restaurant is locked in, but it also works against Toast when a competitor gets there first. Winning the first sale is everything in this market. And at 47x trailing earnings, the market is pricing in continued strong growth. If Toast misses, or guides conservatively, the multiple compresses and the stock gets hit hard even if the underlying business is fine.

The ultimate bear case is the survivability of Restaurants

The most consistent recent data from the U.S. Bureau of Labor Statistics shows restaurants have a 5-year survival rate of roughly 51.4%.

So far the 2026 outlook looks steady. Not good, or great, just steady.

We see a net positive churn where 2026 sees more openings than closures which is effectively the lowest monthly closure rate since 2018 according to the National Restaurant Association, 2026 Industry Outlook.

This means that Toast has a structural dependency on a factor that is out of their control: how well businesses are managed and the relevant tailwinds that business owners get

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BOTTOM LINE

If you believe Toast keeps growing at or near 20%, the current forward valuation is cheap and the policy tailwinds are a genuine bonus. If growth slows to 15% or below the company becomes expensive fast.

Right now my bet is that growth continues and forward 20x increases

• At 25x forward → implies 25–30% upside from here ($35–37/share)
• At 30x forward → implies 40–45% upside ($40–43/share)