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Will Investors Relish Toast Despite Insider Selling?

Story Highlights

A major shareholder at Toast is culminating an insider sale of shares. Investors may be cautious, rather than pessimistic.

Toast Inc. (NYSE: TOST) is a cloud-based digital technology platform for the restaurant industry in the U.S. and Ireland. The company, which went public in September 2021, provides SaaS products and financial technology solutions through its platform.

Though the company has not turned profitable since its IPO, it has reported whopping sales. The company has a strong footing in the restaurant industry, which is still in the early stage of digital transformation. 

In the current economic scenario, Toast has lost 50% year-to-date and has a market cap of $8.46 billion. 

Insider Selling 

With the TOST stock plummeting, its major shareholder (greater than 10% ownership) and top insiders are selling their stock. Per the recent SEC (Securities and Exchange Commission) filings and TipRanks’ Insider Trading Activity tool, Toast’s major shareholder Technology Investment Dining Group, LLC sold 7.2 million shares valued at $101.6 million in two tranches. 

Recently, the firm also sold 2.32 million and 3.1 million shares worth $35 million and $43.74 million, respectively. As of May 28, 2022, Technology Investment Dining owns around 11,007,825 shares of Toast. 

Meanwhile, Toast’s CFO Gomez Elena and Chief Administrative Officer (CAO) Matlock James Michael, sold shares worth around $36,128 and $7,496, respectively. 

Hedge Funds Remain Positive 

However, TipRanks’ Hedge Fund Trading Activity tool shows that confidence in Toast is currently Very Positive, as the cumulative change in holdings across all 8 hedge funds that were active in the last quarter was an increase of 28.9 million shares. 

Wall Street’s Take 

Recently, Mizuho Securities analyst Dan Dolev maintained a Hold rating and a price target of $18 (8.96% upside potential) on the stock. 

Dolev commented, “We were encouraged to hear constructive macro commentary, enhanced focus on achieving profitability, low customer churn paired with strong competitive takeaways, ARPU upside potential, and optimistic growth vectors through hotel restaurants and international expansion.” 

However, the analyst prefers to remain on the sidelines for now based on “medium-term take rate concerns.” 

The rest of the Street is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on seven Buys, four Holds, and 1 Sell. The average Toast price target of $23.58 implies 42.74% upside potential.

Conclusion 

The company’s performance in the short term has been clouded by high price declines and ongoing insider selling. Dolev’s neutral stance also points to medium-term concerns.

Nevertheless, the restaurant industry has scaled higher amid the pandemic. Also, the digital revolution is likely to take it to new heights. Therefore, Toast, which has roughly 62,000 U.S.-based restaurants, could be a wise investment.

Based on long-term prospects, strong sales numbers, and positive hedge funds signal, investors may consider this an attractive buying opportunity.

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