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Week to date, shares of Toast (NYSE: TOST) were down 20% through the market close on Thursday, according to data provided by S&P Global Market Intelligence.

Despite posting strong growth in the third quarter, the restaurant software provider still sees headwinds in the economy impacting demand. Management lowered the top end of its full-year outlook for revenue, but the long-term competitive position of the business appears to be intact.

Here’s what triggered the sell-off

Toast said revenue grew 37% year over year, and it even reported a narrowing net loss on the bottom line. But investors were focused on the company’s guidance and what that implied about near-term demand trends.

Gross payment volume (GPV) grew 34% over the year-ago quarter, but in explaining the revised guidance, management noted that GPV per location was trending down in September and that continued into October.

It’s important to note that the lower-than-expected guidance is a result of external factors and not the result of increasing competition. “Toast is well-positioned to be the trusted platform for restaurants of all sizes and types, remaining at the forefront of this generational opportunity to transform the industry with technology,” CEO Chris Comparato said in the earnings release.

Is Toast stock a buy?

On the surface, narrowing net losses and strong top-line growth shows Toast continuing to win in the marketplace. It added over 6,500 net locations in the quarter, while there are still thousands of locations yet to sign up for the company’s services.

The stock was trading at a price-to-sales ratio of 2.5 going into the earnings report. It’s now trading at 1.56 when using next year’s consensus revenue estimate. Toast is still on track with its long-term strategy, so this lower valuation could set up better returns for long-term investors.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Toast. The Motley Fool has a disclosure policy.

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