Better Market Buying: Lyft vs. Toast

As the 2024 bull market rages on, investors are looking for companies that can deliver robust growth or sustainable returns — and preferably both. In this environment, both Lyft (LYFT 0.48%) and Toast (ALL) looks like solid buys.

While Lyft aims to revolutionize transportation with ride-sharing innovations, Toast is disrupting the restaurant management sector with its comprehensive software solutions. Read on to see the financial metrics, growth prospects and potential risks of both companies. Whether you prefer the leader in travel sharing or the ultimate innovator in restaurant management, you’ll walk away with a deeper understanding of both companies. And then you can decide which stock might be better to capitalize on this bull market.

Are you hungry for business growth? Try some Toast!

Anders Bylund (Toast): Restaurants need a robust payment processing solution. There are many options, including Toast.

They could also use a workforce management system tailored for table service and delivery. Toast can help again.

And wouldn’t it be great if your restaurant management software could analyze your sales patterns and available ingredients to come up with menu adjustments and an effective local marketing plan? Yes, Toast does that too.

I could go on, but my point is simple. The Toast platform offers a lot of restaurant management tools in one package. The whole shebang was designed to work together, simplifying the integration of data from one part of the system to another.

In addition to this manager-friendly setup, Toast goes hard for shops with low service prices, free trials and below-cost payment systems.

I have a hard time investing in restaurant stocks, but I do own a few shares of this sector-adjacent aid. If Toast does its job right, its customers will go about their daily business with less friction and higher profits.

Your mileage may vary, as Toast likes to focus its expansion efforts on a few hyper-specific markets at a time, triggering network effects before moving on to the next target city, but Toast terminals pop up often here in Tampa Bay . And it is more than an anecdote. Toast’s second-quarter sales rose 29% year-over-year, while operating cash flow doubled from $50 million to $124 million.

The stock is not even expensive today. Toast shares are changing hands at a modest valuation of 3.6 times sales, well below the price-to-sales ratio of slower-growing cloud services such as Squarespace and Rubric.

I understand that the trenches of Wall Street are filled with the ghosts of starving start-ups that failed to deliver on their long-term business plans. But Toast is already profitable and serves a target market of epic proportions, offering a unique combination of services in an easy-to-use package. In other words, this stock looks poised to perform for years, building shareholder value along the way.

French toast is one of my favorite buying ideas in this bull market, and I don’t even have a serious runner-up suggestion in the restaurant sector.

The return has begun

Jeremy Bowman (Lyft): Lyft won’t win any conversions with a look at the stock chart. Shares are down more than 80% from their 2019 IPO price of $72, but the business now looks stronger than ever with a new management team, a generally accepted accounting principles (GAAP) profit and a break with the rival. Uber which benefited both companies.

Lyft has reduced incentives and improved customer satisfaction through service improvements and new features like Women+, which allows female riders and drivers to match with other women. The company is also taking advantage of valuable new revenue streams such as advertising through Lyft Media.

In the second quarter, Lyft reported a 17% increase in gross bookings to $4 billion and a 41% increase in revenue to $1.4 billion.

Lyft also reported its first quarter of GAAP profitability, with net income of $5 million in the second quarter, and the company expects solid growth for the rest of 2024, calling for an increase in teen rides and a performance slightly better in gross bookings.

In June, it announced financial targets for 2027 that included compound annual growth in gross bookings of 15% and an adjusted earnings before interest, tax, depreciation and amortization (EBITDA) margin of 4% by 2027, rising from about 2% currently.

If the company can hit those goals, it will have about $1 billion in adjusted EBITDA by 2027, which means the stock looks cheap at its current market cap of just $5 billion. Lower interest rates should also help boost consumer spending, but the business has improved significantly from where it was post-pandemic, and the stock price should eventually reflect that.