Toast Inc-Class A (NYSE:TOST) Shows Strong Growth Metrics in Navellier-Based Screen

Investment strategies often use ideas from established methods, and one such method is described in Louis Navellier's "The Little Book That Makes You Rich." This growth investing plan focuses on finding companies with strong and improving financial results using eight specific rules. These rules look at earnings estimate changes, earnings surprises, sales and profit growth, profit margin improvement, cash flow creation, profit speed, and return on equity. The aim is to find stocks with strong fundamental trends that could result in better returns.

Toast Inc-Class A (NYSE:TOST) appears as a candidate from a screen using this plan. The company, which offers a cloud-based restaurant management system, shows several features that fit with Navellier's growth ideas.

Earnings Revisions and Surprises

A key part of the plan is that increases in analyst estimates can point to underlying strength, often coming before positive stock price changes. Toast shows encouraging activity here:

• The EPS estimate for the next quarter has been increased by 6.77% over the last three months.
• The company has exceeded analyst EPS predictions in three of its last four quarterly reports.
• Its average earnings surprise over those four quarters is a large 57.73%.

Regularly beating predictions, as Toast has done, can lead analysts to adjust their future estimates, possibly starting a pattern of rising estimates and positive investor sentiment.

Strong Sales and Earnings Growth

The "Little Book" method looks for companies that are not only growing, but growing faster. Toast shows forceful expansion in important top-line and bottom-line measures:

• Revenue Growth (Year-over-Year): 28.33%
• Revenue Growth (Quarter-over-Quarter): 25.13%
• EPS Growth (Year-over-Year): 446.67%
• EPS Growth (Quarter-over-Quarter): 400.0%

This very high growth, especially in profits, is a main goal for growth investors. It shows the company is effectively increasing its operations and turning more sales into much higher profits.

Improving Profitability and Cash Flow

For growth to continue, a company must also be getting better at efficiency and financial soundness. Navellier's strategy points to improving operating margins and good cash flow as important signs of quality growth. Toast does well here:

• The company's operating margin has improved by a notable 229.1% over the past year.
• Its free cash flow has increased by 476.3% over the same period.

Margin improvement indicates the company is gaining better control over prices or operations, while very high free cash flow increase gives the financial ability to invest in more growth, reduce debt, or look for strategic options without needing outside money.

Positive Earnings Speed and Return on Equity

The strategy also considers earnings speed—where current growth rates are faster than before—and a good return on equity (ROE). Toast shows clear speed and effective use of shareholder money:

• The current quarterly EPS growth of 400.0% is much higher than the 183.3% growth from the same quarter a year ago.
• The company maintains a good Return on Equity of 12.32%.

Speeding up profit growth can be a strong force for stock performance, while a good ROE shows that Toast is good at creating profits from the money shareholders have put into the business.

Fundamental Rating Overview

A look at Toast's wider fundamental picture, detailed in its full fundamental analysis report, shows a mixed but hopeful view. The company gets a medium overall fundamental rating of 5 out of 10. Its best features are in the Growth and Health groups, where it scores 7 and 8 respectively, showing its forceful expansion and sound financial base with no debt. The main area for care is Valuation, where it scores a 2, showing its shares are seen as costly based on standard measures like P/E ratios. However, this is common for high-growth companies, and the low PEG ratio indicates the high price might be reasonable given its unusual growth path.

Finding More Growth Candidates

Toast Inc-Class A presents an interesting example of a company meeting many of the strict growth rules from "The Little Book That Makes You Rich." For investors wanting to find other companies that pass this screen, you can look at the full list of results using the pre-configured Little Book strategy screen.

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Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation to buy or sell any security, or an endorsement of any investment strategy. All investments involve risk, including the possible loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.