Many investors have a preference for businesses generating strong revenue growth. This is a high-visibility metric that points to a clear product-market fit. The hope is that this setup will result in outsized investment returns.

There's a company that fits that mold whose stock has soared 50% in the past 12 months. Even with that type of gain, as of this writing, shares are still 46% off their peak from November 2021.

Does the dip mean this hot growth stock now presents a once-in-a-decade buying opportunity?

Strong growth

Toast (TOST 1.76%) offers a range of cloud-based tools and financial services to support restaurant owners and operators, making their lives easier in the process.

The company's progress thus far is noteworthy. Toast added 28,000 net new restaurant locations in 2024, bringing its total customer count to 134,000. That figure is 135% higher than it was just three years ago, demonstrating how the business is solving a customer pain point. A restaurant has many moving parts, as operations are complex. This is where Toast's all-in-one solution really shines.

Unsurprisingly, Toast has generated impressive revenue gains, too. Sales jumped 28% in 2024 to almost $5 billion. Wall Street consensus analyst estimates see that number rising to $6.1 billion this year.

Management has its sights set on a large market opportunity. There are 875,000 restaurant locations in the U.S. and 15 million globally (excluding China). As things stand today, Toast has a tiny sliver of this overall opportunity. With the hope that restaurants will increasingly spend more on bolstering their technological capabilities to drive improved operational performance, Toast could have a nice tailwind working in its favor.

Positive traits

The Toast story has centered on growth in the past. But it might be turning the corner financially. Last year, the business was profitable on a GAAP basis. It reported $19 million in net income, a major improvement from the $246 million net loss in 2023.

In theory, Toast should be able to scale up in a lucrative manner. Key expense categories, like sales and marketing and research and development, should be largely fixed. As revenue grows, the bottom line should start to expand rapidly.

With this mental framework, it makes sense that the consensus view among analysts is for earnings per share (EPS) to increase at a faster clip than the top line.

Besides the prospects of improved profitability, Toast likely benefits from switching costs, which can be a durable competitive advantage. Customers who join the platform, onboard with the various services, sign up for new features, and see their restaurants succeed are less inclined to change to competitors.

Valuation

Investors need to understand that there is no sure thing. No matter how good a business looks, producing a satisfactory return is far from guaranteed.

This includes Toast. Yes, it's winning new customers and driving better profitability, but there is competition. The company must continue to operate at the top of its game.

The current valuation might compensate for this risk factor, though. Shares trade at a forward price-to-earnings ratio of 38.3. Analysts' 2027 EPS estimate of $1.61 is 10 times higher than 2024's total, so the stock is cheaper if we look further out. Of course, you have to believe that Toast can continue its current trajectory and achieve better financial success down the road.

While the stock looks like a compelling buy, I wouldn't say it's a once-in-a-decade opportunity.