TOST: Is This Dip a Buying Opportunity for Calls?

Toast provides an all-in-one, cloud-based digital technology platform built for the restaurant community. Its offerings encompass software-as-a-service and financial technology solutions, including integrated payment processing, restaurant-grade hardware, and a partner ecosystem. Core products include point-of-sale systems with fixed terminals, handheld devices, and kiosks; kitchen management tools; and above-store management for multi-location businesses. 'Toast' also offers marketing solutions for email, SMS, loyalty programs, and reservations, plus online ordering and delivery management tools. Team management products streamline onboarding, payroll, and scheduling. 'xtraCHEF by Toast' provides back-office tools for inventory, accounting, and vendor management. The platform also extends to food and beverage retail. Toast's target market includes restaurants of all sizes and types, as well as food and beverage retailers. The company differentiates itself by offering a vertically integrated platform with seamless connectivity across operations, a commitment to customer success, and proprietary technology designed for the food and beverage industry.

The partnership between Toast and Uber is a significant positive catalyst for TOST in the short term. The collaboration aims to boost online sales and streamline digital operations for restaurants using Toast's platform. Uber becoming the preferred delivery marketplace for Toast, starting in the US and Canada, is likely to increase order volume and revenue for Toast's restaurant clients, translating into higher transaction processing revenue for Toast itself. This partnership also signals a potential for product innovation and expanded market reach, enhancing Toast's competitive position. The news is likely to generate positive investor sentiment, driving up the stock price in the next 1-2 weeks. While the full impact will depend on the execution and adoption rate of the integrated services, the initial announcement creates a favorable outlook. Given that there is no conflicting negative news, the positive sentiment should prevail, making a bullish options strategy a reasonable consideration.

TOST's technical outlook is bearish. The recent price action shows a clear downtrend, with the price falling from approximately $49 in early August to around $35 in early November. The stock is trading below its 21-day EMA ($37.16), 50-day SMA ($38.87), and 200-day SMA ($39.89), confirming the downtrend. Momentum indicators also suggest weakness. The RSI is at 41.90, indicating bearish momentum. The MACD is negative (-0.68), and the MACD Histogram is also negative (-0.10), signaling further downward potential. The stochastic oscillator shows the %K line at 22.70 and %D at 23.70 indicating the stock is not yet oversold. The ADX is at 22.02, suggesting the downtrend has some strength. The recent bounce from $34.39 to $35.69 on November 4th is not enough to reverse the overall bearish trend. Given these signals, TOST is likely to continue its downward trajectory over the next 1-3 months.

Toast's MD&A presents a positive growth trajectory, balanced by some operational considerations. `Total revenue` increased by 25% for both the three and six months ended June 30, 2025, compared to the prior year, reaching $1,550 million and $2,887 million, respectively. This growth was primarily driven by a 25% increase in `financial technology solutions` revenue, which hit $1,276 million for the quarter, and a 37% surge in `subscription services` revenue, reaching $227 million. `Gross Payment Volume (GPV)` also saw a healthy increase of 23% for the quarter, reaching $49.9 billion. The company's `Annualized Recurring Run-Rate (ARR)` grew by 31% to $1,928 million. From a liquidity perspective, `net cash provided by operating activities` significantly improved to $302 million for the six months ended June 30, 2025, compared to $104 million in the same period last year, driven by an increase in net income. Toast also amended its credit facility, increasing available revolving commitments to $350 million and extending the term to 2030. Management states that they 'believe that our existing cash and cash equivalents, along with our available borrowing capacity under our credit facility, will be sufficient to meet our working capital needs for at least the next 12 months'.

Toast's Q2 2025 earnings call reflects a strongly bullish outlook, marked by exceeding expectations and raising full-year guidance. CEO Aman Narang highlighted a 'great first half of the year' with Q2 results 'ahead of expectations,' driven by a record 8,500 net new locations and 35% recurring gross profit growth. GAAP operating income reached $80 million. The company is seeing success in both its core business and new segments, crossing 10,000 live locations in enterprise, international, and food and beverage retail, collectively on track to surpass $100 million in ARR by year-end. CFO Elena Gomez announced an increased full-year outlook, now expecting 29% growth in fintech and subscription gross profit and $575 million in adjusted EBITDA, a 32% margin. The company is strategically investing in growth initiatives, particularly in new customer segments and international expansion, which supports a positive outlook for sustained long-term growth, despite higher tariff expenses in the second half. Management's confidence is underscored by their plans to 'unlock incremental investments across both core and our new customer segments to move faster in these areas and position ourselves for sustained long-term growth.'

TOST's financial performance presents a mixed picture. Revenue has generally increased, rising from $1,032,000,000 in Q3 2023 to $1,550,000,000 in Q2 2025, indicating positive top-line growth. However, the gross profit ratio has remained relatively stable, fluctuating between 0.215 and 0.259, suggesting that profitability improvements have not kept pace with revenue growth. Operating cash flow has been volatile, with Q1 2024 showing negative operating cash flow of -$20,000,000 before recovering to $223,000,000 in Q2 2025, highlighting potential inconsistencies in working capital management. Total debt has decreased from $44,000,000 in Q4 2023 to $19,000,000 in Q2 2025, indicating improved solvency. While revenue growth and reduced debt are positive signals, the fluctuating cash flow and relatively stagnant gross profit ratio warrant caution, suggesting a need for improved efficiency and working capital management to ensure sustained financial health.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.