What happened
Shares of cloud-based restaurant software company Toast (TOST -4.06%) dropped as much as 11.5% on Tuesday in conjunction with the broad market sell-off in high-growth stocks to begin 2022. As of 3:27 p.m. ET, the stock is down 8.1% for the day.
So what
The new year has not been kind to growth stocks and recent initial public offerings (IPOs). Toast stock is no exception, with the stock now down over 10% to start the year. This is a continuance of the high-growth sell-off that happened at the end of 2021, with Toast stock now down over 50% since its IPO earlier this fall.
Image source: Getty Images.
There wasn't any news from the company, either, that would have caused this sell-off. However, with recent IPOs, stocks can drop sharply once early investors start to sell their shares after the lock-up period expires, so that could be another reason why Toast stock is down so much today. The ARK Innovation ETF, which owns a lot of high-growth stocks and can influence the day-to-day movements of stocks like Toast, is also down around 5% today. This is another possible reason why shares of Toast slumped so much.
Now what
Even though Toast stock is down almost 10% today, and 50% since its IPO, shares are still not cheap. With a market cap of $15 billion, the stock trades at a price-to-gross-profit (P/GP) of 52, which is more expensive than almost every other stock on the market. If you're thinking of investing in Toast stock, you need to believe it can compound its gross profit at a high rate for many years, and should resist buying just because the stock is down a lot over the last few months.
