It’s easy to see what billionaire hedge fund managers buy and sell each quarter. Although you usually can’t watch it in real time, hedge funds are required to do so. file a quarterly update with the Securities and Exchange Commission (SEC), and these documents are publicly available.
It seems like a good idea to check which stocks billionaire managers are buying and selling. But is this the case?
John Overdeck and David Seigel of Two Sigma Investments and Michael Burry of Scion Asset Management both sold shares of Grill (NYSE:TOST) action. Two Sigma reduced its position by 47% and Burry sold his fund’s entire stake. Should retail investors follow suit?
The toast heats up
Toast operates a management platform for restaurants. It connects all services into one easy-to-use application and includes hardware and software. These include services such as supply management, menu selection, payment processing, etc. Everything synchronizes for an efficient and automated system.
It’s easy to see why this could be very attractive to restaurants. For restaurants that still use legacy accounting software and pen-and-pad ordering, Toast’s system speeds up processes and ultimately saves money. Toast offers numerous tiers and packages targeting all types of restaurants, such as a cafe, pizzeria or bakery, with a vertically integrated program that can improve overall operations.
It’s no surprise that Toast has added tons of new locations and generated higher sales. Average recurring revenue (ARR) increased 32% year over year in Q1 2024 and added 6,000 new locations during the quarter for a total of 112,000.
Is Toast toast?
From an investor’s perspective, Toast runs an interesting business. It has a strong recurring revenue stream with a software as a service (SaaS), and once a customer signs up, there are SaaS fees as well as payment processing fees. That’s why his favorite primary metric is ARR.
There is also a healthy network effect that fuels the company’s growth, and it has been able to increase sales without increasing marketing expenses. Seventy-five percent of new business comes from inbound channels, with 20% coming from customer referrals. It’s gaining an even larger share of new restaurants that don’t have traditional operations and are opening with technology-based management systems.
So why are billionaires selling Toast stock? Toast’s main problem at the moment is continued losses. Its net loss increased in the first quarter to $83 million this year from $81 million last year, although that was due to restructuring measures. Free cash flow was negative $33 million, although that was an improvement from last year’s $65 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) turned positive and is increasing, and management expects free cash flow to be positive for the remainder of the year. It also expects operating income (based on generally accepted accounting principles (GAP))…
