TOST is Undervalued

At the time of writing, TOST is trading around $26/share. The company went from losing $246M in 2023 to earning $342M in 2025, added \~30k restaurant locations, and is sitting on \~$2B in cash with basically no debt. For the current share price to make sense, you need to believe that AI competitors will gut their subscription business *and* that location growth will collapse at the same time. Their balance sheet is pristine. \~$2B cash vs \~$1B total liabilities. Even after discounting less tangible assets, you’re looking at \~$1.57B in adjusted net equity. Since Toast’s “subscription services” revenue and their “financial technology solutions” (FinTech) have different potential growth rates and different margins, I am looking at them separately: **1) FinTech (Payments + Toast Capital)** * Revenue tied mostly to number of locations * Grew \~24% YoY in 2025 (vs 27% in 2024) * Location count grew 26% (2024) and 22% (2025) * \~13% post-tax margin on incremental revenue This side of the business has very little risk from AI. Restaurant owners aren’t going to be vibe-coding a new payment processing system. Even in a recession, dining spend probably dips modestly, maybe \~5-10%. **2) Subscription Software Services** * Revenue depends on number of locations as well as average revenue per user * Grew this revenue \~33% YoY in 2025 (vs 41% in 2024) * Average revenue per user grew a little over 8% in 2025 * \~55% post-tax margin on incremental revenue This side of the business is clearly where the AI concerns are coming from. Can new AI competitors take some of Toast’s market share for each of their subscription services? Absolutely. If it’s easy enough to create a fantastic restaurant-oriented payroll service or marketing service, then Toast *will* lose some potential customers and *will* see their margins in this segment compress. But the current \~$26 share price is implying that this is a near certainty. There absolutely is an outcome where Toast’s own AI software, Toast IQ, is the best game in town, and keeps customers paying for their software. That’s kind of already Toast’s schtick? Restaurants already generally highly praise the subscriptions/software but think they are a bit pricey. Toast's reported operating income was \~$292M in 2025. I'm calculating an adjusted “owner earnings” of \~$383M, which after normalized taxes (\~23%) becomes \~$295M in sustainable earnings at the current revenue levels. Base case assumptions: * Location growth: 15% annually for 5 years (\~330k locations) * FinTech revenue grows proportionally with locations plus \~2.5% annually for inflation * Subscription revenue grows proportionally with locations + \~6% ARPU growth * Discount rate of 10%/year You are looking at a base case present value of $44.83, or about 72% upside from the current price. The only way \~$26/share really makes sense is if location growth slows significantly *and* AI competitors take meaningful share of subscription revenue. You’ve got a company that has already proven it can scale and become profitable, has a strong balance sheet, has high-margin subscription revenue on top of a payments revenue stream that is unlikely to be disrupted, and is already investing in AI. Could AI disruption matter? Definitely. But at this price, it feels like the market is assuming they completely fumble it, and I don’t see that as the base case. At \~$26, TOST looks very undervalued to me. More thorough write-up: [https://bsntfinance.substack.com/p/tost-is-undervalued-29-mar-2026](https://bsntfinance.substack.com/p/tost-is-undervalued-29-mar-2026)