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Should You Consider Investing in Toast, Inc. (TOST)?

·3 min read

Raging Capital Management, an investment management firm, published its third-quarter 2021 investor letter – a copy of which can be downloaded here. The fund has compounded its returns at double-digits annually since its inception in 2006, but it plainly did not deliver the results that it expected for the past few years. Raging Capital struggled to adapt to the recent market environment which heavily favored momentum over value, in addition to making too many mistakes. You can take a look at the fund’s top 5 holdings to have an idea about their best picks for 2021.

Raging Capital Management, in its Q3 2021 investor letter, mentioned Toast, Inc. (NYSE: TOST) and discussed its stance on the firm. Toast, Inc. is a Boston, Massachusetts-based cloud-based restaurant software company with a $24.2 billion market capitalization. TOST delivered a -6.54% return for the past month and it closed at $48.13 per share on November 14, 2021.

Here is what Raging Capital Management has to say about Toast, Inc. in its Q3 2021 investor letter:

"Toast: Raging Capital was the first institutional investor in this now super successful restaurant software and payments company. With a little luck, Toast could go public and become our first 50x+ bagger!"

Pixabay/Public Domain

Based on our calculations, Toast, Inc. (NYSE: TOST) was not able to clinch a spot in our list of the 30 Most Popular Stocks Among Hedge Funds. Toast, Inc. (NYSE: TOST) delivered a -17.50% return in the past 5 days.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by 115 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. Recently we came across a high-growth stock that has tons of hidden assets and is trading at an extremely cheap valuation. We go through lists like the 10 best growth stocks to buy to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage.

Disclosure: None. This article is originally published at Insider Monkey.