Restaurants, in order to operate efficiently and profitably, need technology in the form of a point of sale (POS) system for processing transactions, reading cards, printing receipts, and offering an easy-to-read display for order-takers. Additionally, they need a product that can run back-office operations like managing staff payroll and product inventory and they need all this in a contemporary-friendly contactless solution. Both companies under our consideration offer such a solution so which is the better investment right now: Toast (NYSE: TOST) or PAR Technology (NYSE: PAR)?
Toast's technology is built on the more open Android operating system rather than Apple's restrictive iOS platform. Since its inception, the company was on a steady growth trajectory, acquiring new customers and receiving venture capital from investors until the pandemic hit and business came to a standstill; but not for long as it quickly became one of the top contactless payment processing solutions used by struggling restaurants. This helped the company realize pre-pandemic revenue numbers by Q3 2020 and that's only the beginning.
Digital ordering for delivery and carry-out have both grown over 100% thanks to the pandemic and will likely grow further as more people realize how convenient the process is. Additionally, more restaurants are adopting contactless solutions thanks to the pandemic and this will no doubt trigger more sales for Toast. And finally, annual recurring revenue (ARR), a vital metric, is up 118% as of Q2 year-over-year (YoY).
As for the bears, the main one is that Toast is grossly overvalued. Still operating at a loss, the company has a market cap of $25 billion on revenue of a little over $700 million for the first half of this year. It's too expensive
PAR Technology has been in the POS game for decades longer than Toast and counts quick-serve restaurant (QSR) royalty like McDonald's, Yum! Brands, and Subway among its many clients. This incredible client roster will no doubt continue business with the company as it pivots its POS solution, Brink, to the cloud and makes it a full Software as a Service (SaaS) offering. On that end, as per the company's Q2 report, its ARR is up 166% YoY, no doubt fueled by its acquisition of Punchh, Inc., which also helped PAR Technology grow its acquisition numbers as well.
The company is still struggling, however, as evidenced by its issuance of stock to the tune of 10% of its market cap to grow its business but also dilute shareholder value.
Veteran powerhouse PAR Technology is the safer bet with its blue-chip client roster that will no doubt help it secure additional clientele. Toast is too new to the market to safely take a position in.
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