Is TOST Stock TOAST? 3 Strong Contenders to Invest In

With the pandemic firmly in the rearview mirror, Americans have gone above and beyond to compensate for the years spent indoors with out-of-home experiences. This has naturally been accompanied by a lot of eating out and ordering in. Hence, it’s understandable why cloud-based restaurant technology company Toast, Inc. (TOST) took the (retrospectively ill-fated) decision to capitalize on the increased demand by adding a processing fee of $0.99 on all online orders over $10.

However, with persistent inflation that the Fed has been trying to tame for more than a year, consumers who have been cutting back elsewhere to spend on outdoor experiences weren’t too thrilled, to put it mildly.

The fee that went into effect on July 10 applied to consumers directly while bypassing the underlying restaurant, whose patrons hardly know the company that offers fully integrated point-of-sale (POS) systems. Moreover, the restaurants' reputation, which had to bear the brunt of the unilateral nature of the charges they were cut out of, was being negatively impacted.

The consequent backlash was so prompt and intense that TOST’s management was compelled to reverse its decision. The company’s CEO Chris Comparato said, “We made the wrong decision, and following a careful review, including the additional feedback we received, the fee will be removed from our Toast digital ordering channels.”

However, the company’s attempt to repair and restore long-standing relationships with 85,000 disgruntled restaurant locations and enterprise-level clients to prevent losing them to Shift4 Payments, Inc. (FOUR) and Block, Inc. (SQ) has made it fall out of favor with its shareholders. The news of TOST’s course reversal was greeted by an intraday slump of as much as 11%.

Given that, in the short term, TOST was leaving a lot of money on the table by foregoing fees worth hundreds of millions with a gross margin close to 100%, investors' drastic market reaction and reassessment is understandable.

Although the stock price has recovered by more than 2% since then, it might not be the end of TOST’s recent troubles. Its shenanigans have attracted the threat of litigation from at least two law firms: J. Klein, Esq. (The Klein Law Firm) and Levi & Korsinsky, LLP.

While it remains to be seen how TOST will emerge from its recent troubles when the dust settles, here are a few alternatives investors could consider to give the unfolding drama a wide berth.

VMware, Inc. (VMW)

VMW provides multi-cloud services for all apps that enable digital with enterprise control. Through its portfolio spanning application modernization, cloud management, cloud infrastructure, networking, security, and anywhere workspaces, the company forms a digital foundation for customers to build, run, manage, connect, and protect their workloads.

On June 29, VMW announced that it is joining forces with AMD, Samsung, and members of the RISC-V Keystone community to simplify the development and operations of confidential computing applications.

For the fiscal first quarter that ended May 5, VMW’s revenue increased by 6.1% year-over-year to come in at $3.28 billion, while its non-GAAP operating income increased by 6.2% year-over-year to $819 million. Consequently, the company’s non-GAAP net income increased by 18.8% and 16.4% year-over-year to $644 million, or $1.49 per share.

Analysts expect VMW’s revenue and EPS for the fiscal second quarter to increase 3.6% and 4.9% year-over-year to $3.46 billion and $1.72, respectively. For the entire fiscal, both revenue and EPS are expected to increase by 4.7% and 5.4% year-over-year to $13.97 billion and $6.89, respectively.

CSG Systems International, Inc. (CSGS)

CSGS primarily serves the communications industry in the Americas, Europe, the Middle East, Africa, and Asia Pacific by providing revenue management, digital monetization, customer engagement, and payment solutions.

On July 19, CSGS announced the completion of its digital transformation project with Airtel Africa. CSGS’ unified revenue management solution has enabled its Client to streamline processes across its business, minimize costs and shorten time to market while delivering experiences that drive customer loyalty and sustainable business growth in wireless.

On June 22, CSGS announced that PLDT, the Philippines’ largest fully integrated telco company, would be expanding its two-decade partnership with the company as the latter embraces the power of the cloud to bring its business into the future and transform its customer experience, particularly for its Enterprise unit.

Analysts expect CSGS’ revenue for the fiscal year 2023 to increase by 6.1% year-over-year to $1.08 billion, while its EPS is expected to come in at $3.54. Both revenue and EPS are expected to increase by a further 4.8% and 10.3% year-over-year during the next fiscal to come in at $1.13 billion and $3.90, respectively.

Sapiens International Corporation N.V. (SPNS)

Headquartered in Israel, SPNS provides software solutions that cater to the financial services sector. With a portfolio consisting of Life, Pension, Annuity, and Retirement Solutions, the company’s offerings primarily serve the insurance sector.

On July 13, SPNS announced the expansion of its relationship with LocalTapiola Life (LT), Finland’s fourth-largest life insurer. The expanded partnership will include Sapiens Cloud Services for ten years.

This underscores SPNS’ earlier agreement to implement LT’s core system transformation by replacing its current eight separate Policy Administration Systems with Sapiens CoreSuite for Life and Pensions.

On June 22, SPNS announced that it has significantly strengthened its presence in DACH countries as it furthers its strategy to expand business and provide more innovative technology to the region’s insurance market.

On June 6, SPNS announced that Penn National Insurance has selected Sapiens ReinsurancePro solution as a part of its multiyear legacy modernization and automation initiative, including the use of Sapiens cloud services for a seamless and secure hosting experience.

Ahead of its August 2 earnings release, SPNS’s revenue and EPS for the fiscal second quarter are expected to increase 6.4% and 18.5% year-over-year to $126.19 million and $0.32, respectively. The company met or surpassed its consensus EPS estimates in three of the four quarters.