With the prospect of the Federal Reserve embarking on a path of lowering interest rates in the near term, investors may look to businesses that have better growth prospects as a result. Toast (TOAST 1.62%) definitely falls into that category.

Since its initial public offering in late 2021, shares of the restaurant technology specialist have struggled and are currently down 53% from their all-time high, which was set in November 2021. But this year the stock is gaining from new momentum

So it’s time to buy this growth stock?

The value proposition for the customer

Toast offers a wide range of products and services that specifically address the needs of the restaurant industry. In addition to point-of-sale hardware systems that accept payments, customers can manage loyalty programs, manage staff, run marketing campaigns and access working capital loans, among many other offerings.

Because the business focuses exclusively on restaurants, it has developed expertise in serving this specific customer group. And based on its growth to date, Toast clearly adds tremendous value to its clientele.

During the three-month period ending June 30, the business posted a 27% year-on-year revenue increase. Even in uncertain economic times, this gain is impressive. Those fiscal second quarter sales of $1.2 billion were nearly 3 times higher than in Q2 2021.

This top-line growth was driven by notable customer additions. Toast counts 120,000 restaurant locations as its user base. That’s a 29% increase from just 12 months ago.

The positive attributes of Toast

The company’s growth trajectory is hard to ignore. However, there are other compelling features that investors should keep in mind. For starters, $1.5 billion in annual recurring revenue is growing at a faster rate than the overall business. These include subscription and payment processing services.

It’s hard to know for sure without getting data on churn rates, but I think a valid argument can be made that Toast benefits from some switching costsas is the case with many software enterprises. Once restaurants are integrated with Toast’s suite of products and services, they may be less inclined to switch to different providers.

Toast also highlighted in its investor day presentation in May how it helped a restaurant client run payroll 90% faster while significantly increasing the number of orders delivered in less than 10 minutes. If the business can improve sales and profitability or strengthen operations in other ways for other customers, I doubt these restaurants would have any intention of moving away from Toast’s offerings.

Toast still has a huge growth track ahead of it. There are approximately 875,000 restaurant locations in the US and 15 million globally (excluding China). And in total, restaurants will spend more than $110 billion in technology investments this year worldwide. As a highly regarded service provider, Toast is well positioned to take advantage of this opportunity.

Investors may be surprised to learn that Toast is profitable. It posted a net income of $14 million in Q2. While not a significant amount in itself, this was a huge improvement over the $98 million net loss in the same period a year ago.

It’s easy to trust that Toast’s bottom line will expand at a faster rate than revenue in the future. Despite such a huge increase in sales between the second quarter of last year and the same period this year, operating expenses actually fell by $7 million. As a software business, Toast certainly has the ability to capitalize on its spending going forward.

Consider the rating

Shares in Toast have been on an absolute tear this year, up 70%, handily crushing the broader market indices. But it still trades at a price-to-sales (P/S) multiple of 3.9, which is reasonable for a profitable and growing business like this.

To be clear, the valuation isn’t as compelling as it was earlier this year — the stock was selling for a P/S ratio of 2.2 in January. But investors with a long time horizon should still consider taking a bite out of Toast stock right now.