We are excited to share with you all our latest long term investment position, Toast.

How We Found It:

Our interest in Toast started organically from two visits to restaurants over Thanksgiving. We noticed servers using a sleek handheld device to take orders and process payments tableside. We could tap to pay and leave immediately, with no waiting for the check. It was a meaningfully better experience.

The second time we saw the same device, we made a point of writing down the name, Toast. We then went back to the first restaurant to confirm, and sure enough, they were using it too.

From that point on, every restaurant and coffee shop we visited, we made sure to check what their ordering and payment systems were. The results were consistent, the majority of the locations we visited were running on Toast. When we traveled home for Christmas and repeated the exercise, 8 out of 10 places we visited for food or coffee were using Toast.

At this point, we wanted qualitative validation, not just our own observations, but feedback from the people actually using the software day to day. We began speaking with servers and managers at the locations we visited. The feedback was remarkably consistent. Not a single person had a negative word about the software itself. The only friction mentioned was the operational lift of switching from paper to digital, and even then, multiple people noted that Toast’s onboarding team was hands on throughout the transition, helping with training and setup.

Across all of our conversations, four themes emerged consistently:

• Faster order entry

• Fewer mistakes

• Ability to serve more tables

• Improved kitchen efficiency

Based on our interactions with restaurant workers, we felt that there was something worth researching.

About the Company:

Toast is a cloud based, all in one technology platform purpose built for the restaurant industry. Through a single unified system, restaurants can manage point of sale, payments, digital ordering and delivery, marketing and loyalty, team management, and back of house operations.

The business generates revenue through three segments:

• Subscription Services: SaaS fees charged per location, based on the number of software products, configuration, and employee headcount.

• Financial Technology Solutions: Transaction based revenue from payment processing facilitated through the platform.

• Hardware & Professional Services: Revenue from the sale of handheld devices, tablets, terminals, and accessories, along with installation and training fees.

(Source: Toast Investor Relations Presentation)

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Investment Thesis:

We believe Toast is a high quality business trading at a discounted valuation that the market does not fully understand.

Toast has built the operating system for the restaurant industry. Through a single, unified platform, restaurants manage their entire workflow, from menu configuration and order taking, to kitchen coordination, payment processing, and payroll. Rather than stitching together a patchwork of vendors, Toast customers get one product that runs the business end to end. That depth of integration creates real switching costs and makes Toast genuinely sticky.

The operating results reflect this position. In fiscal year 2025, Toast added 30,000 net new locations, grew Gross Payment Volume (GPV) 23%, expanded Annual Recurring Revenue (ARR) 26%, and delivered Recurring Gross Profit growth of 33%. This is not a company in survival mode, it is a business compounding at scale while the market is distracted by AI narratives.

Why does the opportunity exist? Two reasons. First, the broader AI driven selloff in SaaS has unjustifiably punished Toast alongside lower quality peers, even though the case for AI meaningfully disrupting restaurant operations software in the near term is far from clear.

Second, competitive concerns around players like Shift4 and Square have weighed on sentiment. But the market is missing something, Toast is solely focused on restaurants. While competitors spread their attention across retail, e-commerce, and enterprise payments, Toast has spent years going deep on the specific, complex needs of the restaurant industry.

Valuation:

Given Toast’s high growth rate, we assessed valuation primarily through revenue based multiples rather than static earnings metrics.

Toast currently trades at an EV/Revenue multiple of 2.3x, meaning for every $1 of revenue, the market is paying $2.30. On the surface, that is a modest premium for a business growing at this pace.

On an EV/EBITDA basis, Toast trades at approximately 38x. Without context, that sounds elevated. But when you layer in the trajectory of the business, the picture changes significantly. Toast has been adding approximately $1.2 billion in revenue per year since fiscal year 2023. More importantly, EBITDA margins have expanded from -6.0% in 2023 to +6.7% in 2025, a 1,270 basis point improvement in just two years. Revenue is scaling faster than costs, and the business is inflecting.

Toast has also been able to compound revenue by roughly 38% annually since the IPO, while EPS turned positive for the first time in 2024 and continued to accelerate in 2025.

Since going public, Toast has demonstrated five years of consistent margin expansion, with operating and profit margins now positive and accelerating.

Put all together, we believe the market is undervaluing the pace and durability of Toast’s margin expansion. The EV/EBITDA multiple looks high by itself, but if you factor in the margin growth, it is more than justified.

For context, here is how Toast compares to its closest publicly traded peers:

One additional point worth highlighting, unlike many of its payment processing peers, Toast does not rely on M&A for growth. Its location count, GPV, and ARR expansions are all organic. This is a meaningful quality differentiator that we believe the market also underappreciates.

Risks:

With any investment comes risk.

The first is the SaaS selloff. Toast has been caught in the sell off of software stocks driven by AI sentiment. We believe this is largely unrelated to Toast’s business and represents an opportunity, but the overhang on the stock is real in the near term.

The second and most important structural risk is that Toast’s singular focus on restaurants is both its greatest strength and its greatest source of concentration risk. Restaurants operate on thin margins and are sensitive to labor costs, inflation, and consumer sentiment. Toast’s growth story depends in part on new restaurant locations opening and existing locations remaining viable. The U.S. restaurant industry has a roughly 10% annual failure rate even during favorable economic conditions, and a meaningful deterioration in the macro environment could pressure Toast’s net location growth.

The third risk is regulatory. Toast currently earns an attractive payment processing margin of approximately 55 basis points. Regulators have become increasingly critical of surcharging practices in the payments industry, and any adverse regulatory action targeting processing fees could pressure this revenue stream.

Recent Catalysts:

Over the past several months, Toast has announced product and partnership developments that reinforce the long term thesis.

Toast IQ

Toast’s new AI powered operations layer, Toast IQ, automates inventory management, menu optimization, and pricing recommendations. Rather than relying on manual analysis, restaurants can now access data driven suggestions grounded in their own business trends and local market conditions.

New Enterprise Partnerships

Toast has secured three significant new partnerships that validate its enterprise level capabilities:

• Applebee’s

• Uber

• Coca-Cola

These partnerships signal that Toast is beginning to win at scale with national brands, a market segment that adds significant ARR per location and carries strong retention characteristics.

Fiscal Year 2026 Guidance:

Management has issued the following guidance for fiscal year 2026:

Management’s guidance implies continued double digit gross profit growth and a significant step up in EBITDA, consistent with our operating leverage thesis.

Summary:

Toast has built a genuinely differentiated business in a large and underserved market. The platform is deeply embedded in its customers operations, the growth trajectory is strong, and the margin expansion story is playing out ahead of expectations. The current valuation does not reflect the durability of Toast’s competitive position or the earnings power developing beneath the surface.

We added Toast to our portfolio and believe it will continue to compound as the market comes to appreciate what this business has built.

Disclaimer

Atlas Capital Research is not investment advice.

As a reader of Atlas Capital Research, you agree with our disclaimer. Please read the full disclaimer here.

Now, before I butter you up and tell you this is the single greatest investment idea, there are a few risks that should be taken into consideration first.

The U.S housing market has been under significant pressure in the post-rate-hike environment. Home buying has slowed as buyers remain on the sidelines, and current homeowners have not wanted to sell their homes because they are locked into a mortgage rate under 4%.

Now let’s address the housing affordability crisis. In a report from the National Association of Realtors, the average age of a first time home buyer in the U.S is 38 years old, an all time high. First time home buyers now only make up 24% of the market, the lowest in history. This is primarily due to the high interest rate environment, making home ownership expensive and renting a more affordable option for Gen Z and Millennials.

Company-specific risks:

Besides the current slowdown in the housing market, there are a few specific company risks you should be aware of as well.

1. Company revenues have decreased 40% due to the slowdown in mortgages (fiscal years 2022-2023).

2. Stock is trading at a premium at current earnings.

3. The acquisition of Redfin for $1.75 billion in an all-stock deal.

4. The company’s second acquisition of Mr. Cooper for $9.4 billion in an all-stock deal.

5. Negative free cash flow.

If you are still reading, you must be interested. Now, let’s dive into why we like the company and believe it’s a good investment.

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Thesis:

We believe that in a lower interest environment, Rocket Companies has strategically positioned itself to capture new homebuyers, first-time buyers, and homeowners interested in refinancing through an integrated platform. Rocket Companies is ultimately making the home-buying and refinancing process as easy as possible.

Redfin:

Redfin is a technology-driven real estate brokerage and platform that enables consumers to buy, sell, and rent homes through its website and mobile app.

As one of the top three online home search platforms in the U.S., Redfin hosts over 1 million listings, attracts more than 50 million monthly users, and employs roughly 2,200 in-house agents.

The company differentiates itself from traditional brokerages by charging lower listing fees and compensating agents based on customer satisfaction rather than solely on commission. In addition to agent services, Redfin offers digital tools such as home value estimates, market data, and virtual tours, along with integrated mortgage, title, and closing services designed to streamline the real estate transaction process.

Mr. Cooper:

Mr. Cooper is a leading mortgage servicer and originator in the United States. The company primarily earns revenue through its servicing portfolio, where it collects payments, manages escrow accounts, and handles customer support on behalf of investors and lenders.

As one of the largest non-bank mortgage servicers, Mr. Cooper services millions of loans with a portfolio exceeding $900 billion in unpaid principal balance. In addition to servicing, the company originates mortgages for home purchase and refinancing, which are then sold into the secondary market.

Rocket Companies:

Rocket Companies is a tech-driven platform focused on real estate, mortgages, and e-commerce in the United States and Canada. The company operates through two primary segments: Direct to Consumer and Partner Network. Its flagship brand, Rocket Mortgage, is the largest U.S. mortgage lender, offering fully digital mortgage solutions. Complementing this, Amrock provides title insurance, property valuation, and settlement services, while Rocket Homes operates a home search platform and real estate agent referral network, enabling a streamlined, technology-enabled home buying and selling experience.

Valuation:

Right now, the stock trades at $19.21 per share. Because of the slowdown in mortgage sales, the stock trades at a Price to Sales ratio of 0.57 and a Price to Book ratio of 5.16. From fiscal year 2024, revenues have started to grow again at a 40% increase.

We anticipate that, as rates start to decrease and home buyers return to the market, Rocket Companies will grow revenue at a minimum of 10% YoY.

Market Position:

“Rocket's consolidated credit profile would reflect its strong market position and leading mortgage franchise in the U.S.. The company would combine its significant scale in mortgage origination with Mr. Cooper's leading scale in mortgage servicing. Additionally, it would reflect the company's strong pro forma liquidity, solid asset quality of the servicing portfolio, robust and integrated technology platform, and experienced management team.” (Fitch Ratings)

The Three Companies Together:

With the acquisitions, Rocket Companies has the ability to access 50 million monthly users via Redfin and will gain an additional 7 million clients through Mr. Cooper.

Rocket Companies gives the home buyer a one-stop shop. Buyers can find their home, finance, and close on their home all on one app.

Given that Gen Z and millennials are the current first-time home buyers, Rocket Companies has built a platform that meets the needs and future needs of home buyers.

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.

Sources:

https://www.realtor.com/advice/sell/experts-predict-housing-market-mortgage-drop-rate-cut/

https://ir.rocketcompanies.com/news-and-events/press-releases/press-release-details/2025/Mr--Cooper-Americas-Largest-Servicer-Joins-Rocket-the-Nations-Largest-Lender/default.aspx

https://www.cnbc.com/2025/03/31/mortgage-company-rocket-buying-mr-cooper-in-all-stock-deal-valued-at-9point4-billion.html

https://ir.rocketcompanies.com/home/default.aspx

https://ir.rocketcompanies.com/news-and-events/press-releases/press-release-details/2025/Rocket-Companies-to-Acquire-Redfin-Accelerating-Purchase-Mortgage-Strategy/default.aspx

https://www.sec.gov/ix?doc=/Archives/edgar/data/0001805284/000180528425000010/rkt-20241231.htm

Thank you to everyone who has been a subscriber, and I want to welcome all the new subscribers! As we begin to release deep dives, please feel free to comment and share your thoughts or ask any questions.

Under this section will be home to all in-depth write-ups on economics and equity analysis.

Before diving into any topics, we wanted to go over our investment philosophy and how we analyze companies.

The first edition of “Deep Dive” will cover the following topics:

1. Portfolio Structure

2. Long-term investing philosophy

3. Investing for the short term

4. Position examples

5. Lessons from the past

6. What’s to come next

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Portfolio Structure:

We have a very simple methodology that we use to structure our portfolio. We like to hold 10-12 equities at a time. There are times when we do go over 12, but only when the market presents great opportunities we can't pass up. Of those 10-12 positions, half are what we call our “core positions”. Core positions are businesses that we think are excellent and want to own for the long term. The rest of our positions are “swing trades”. Swing trades mainly include special situations and shorter-term positions lasting up to 1 year.

Long-term Investing Philosophy:

At a high level, we like to look for great businesses trading at a discounted valuation due to overreaction to a negative macro or company event.

However, the company has to meet our criteria; we don’t invest in any stock that has faced a negative event (sometimes it’s for a reason). Our philosophy is to find these companies that are now trading at a discount due to an event, that are excellent businesses, and generate free cash flow. I must also add, the company must have excellent leadership. A great leadership team can make all the difference.

At the end of the day, we are value investors. Our goal is to deploy capital into businesses that are undervalued, and that we don’t think the market has yet recognized the value, or is discounted due to an overreaction.

Through trial and error, as we have refined our process, this methodology has worked well.

Short-term Investing Philosophy:

Our short-term tradding is strictly focused on special situations. Special situations can include spin-offs, tender offers, and even corporate actions. We adopted this philosophy from Buffett. If you go back and study Buffett before Berkshire, he ran the Buffett Partnership. One of the challenges in running a long-term focused portfolio is generating additional capital to reinvest. Buffett identified an area that, if done properly, is low risk and generates the additional capital needed. The lowest risk way of doing so is through Dutch Tender offers, but those do not happen very frequently.

Therefore, we tend to focus on spin-offs for our short-term investments (if a Dutch tender offer does come to the market, we will invest).

You have to be careful with spin-offs because you need to know why the company is doing the spin-off. Sometimes, if the overall company is struggling and they have a subsidiary that would perform better outside of the parent company, a spin-off could occur. On the flip side, companies could spin off a subsidiary that is not performing well to separate it from the parent company, so overall performance is not affected.

The other thing you have to watch is timing. If you invest in the parent company after a spin-off transaction, investors are usually fine. However, if you invest in the newly created company, waiting a few months could be very beneficial. Typically, with spin-offs, if you are a shareholder of the parent company, you will receive shares in the newly formed company. Timing matters because if that company is in an index like the S&P 500, all mutual funds will also receive shares in the newly formed company. Since that company is not in the index, the mutual funds have to sell their shares.

Position Examples:

1. Starbucks (SBUX)

Starbucks is no doubt a great business that generates strong free cash flow. We opened our position in SBUX in the spring of 2024. Leading up to this, the business was struggling. The company had already released one disappointing round of earnings and then reported another bad round of earnings. This time, the stock dropped over 20% on the continued signs of struggle and the fact that the company had its first drop in same-store sales since the pandemic. We thought this was a good opportunity to initiate a position in a dominant company that seems it have lost its way temporarily. Our opinion was they needed a leadership change, and like the company had done in the past when it had faced hardship, founder Howard Schultuz came back as CEO.

To everyone’s surprise, the CEO of Chipotle at the time, Brian Niccole, was named the new CEO. The stock recovered from the low $70’s to the mid $90’s, and we are confident in his ability to return this company to its former glory.

2. Dutch Brothers (BROS)

Dutch Brothers is another great business we got the opportunity to invest in. This was a traditional value play. The stock traded sideways for years after going public. What caught our eye was that the business was still founder-led and had amazing financials. At the time, the stock was tradding at $33 and had a relatively low Price to Book and Price to Sales ratio. Looking at the company’s free cash flow, we deemed a fair share value to be $65. With the company’s expansion plans, we were happy to buy at $33 per share and had plans to hold the equity for a few years. The stock price started to appreciate faster than expected, and by March of 2025, the share price was over $80 per share.

For the next two examples, if you have been a subscriber, these will sound very familiar.

3. Warner Bros (WBD)

We opened a position in the company after evaluating the value of the business if the two were to split. It’s no secret that legacy media (i.e, cable) is dying. And this is one of the large issues with WBD, their streaming business is extremely valuable, and they own the rights to DC, which is invaluable. The proposed transaction would have one company with Warner Bros studio, DC, and the streaming business. The second company would have Discovery and the cable business. If you go back and look at the balance sheets before Discovery and Warner merged, Warner was carrying the majority of the debt. Discovery had around $15 billion in debt, and once the two companies merged into one, it resulted in a total debt load of $50 billion.

Warner is highly leveraged and, with the business segments getting split, offers a huge potential upside to shareholders.

4. Top Golf Callaway Brands (MODG)

We initiated a position based on the planned spin-off of Topgolf, a move expected to unlock value by separating the asset-light entertainment business from the capital-heavy golf equipment segment. The key detail? Callaway retains all the debt, potentially leaving Topgolf as a cleaner, faster-growing standalone company.

Lessons From The Past:

Early on, we looked for cheap companies tradding at what we thought was a discount. Just because a stock is cheap and tradding at a discount does not mean it’s a good buy. We learned this the hard way; sometimes, equities are cheap because the underlying company is not all that good.

Another lesson we learned was the timing of spin-offs. This is why I stressed it above. If you want to invest in the newly formed company, just wait. Over the next 3-6 months, the price will drop. A specific example of this is Seaport Entertainment Group (SEG). We received shares in them after Howard Hughes did a spin-off. We continued to buy shares for a few months at the $26-$28 range. Unfortunately for us, the equity is now trading around $21. Thankfully, we viewed the equity to be trading at a steep discount compared to the Net Asset Value (NAV).

What’s To Come Next:

Hope this sets the stage for what’s to come and gives you all an understanding of how we look at equities.

We are currently working on our first equity deep dive and are excited to share it. As mentioned above, we welcome all thoughts, comments, and questions.

Disclaimer

The Value Investors is not investment advice.

As a reader of Value Investors, you agree with our disclaimer. Please read the full disclaimer here.