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One of the hottest IPOs of the week was Toast Inc (TOST), a company that provides cloud-based point-of-sale (POS) technology for restaurants. Be on the lookout for a leader in the restaurant POS space that could be buried inside a larger company and may be undervalued based on the IPO valuation from Toast.

What Happened

Toast priced its shares at $40, which was ahead of the planned offering range from the company. Toast had a valuation of $20 billion based on the $40 price. Shares of Toast have run up this week and hit over $65 with strong demand from traders and investors. Toast shares have been recently trading at around $55.78, valuing the company at more than $30 billion.

Toast had revenue of $823 million in fiscal 2020, up 24% year-over-year. The company reported revenue of $704 million for the first six months of 2021, up 105% year-over-year. Toast has been a fast grower in the restaurant market using the cloud-based approach.

The Legacy Restaurant Partner

For years, Aloha POS has been a leader in the restaurant segment and partnered with many of the largest restaurant companies in the world for point-of-sale solutions. Aloha operates as a unit of NCR Corporation (NCR), a company valued with a market capitalization of $5.1 billion.

Hospitality revenue for NCR was $684 million for NCR in 2020, down 19% year-over-year. The company reported revenue of $394 million for the first six months of 2021, up 34% year-over-year.

The hospitality segment is the smallest of the company’s three main business lines with the banking segment and retail segments having revenue of $3.1 billion and $2.1 billion, respectively, in fiscal 2020.

While some smaller and newer businesses may be attracted to Toast as the new player in the market, it seems less likely that large corporations would be willing to move away from Aloha, a proven and trusted leader in the market.

NCR is also seeing competition coming into the space from players other than Toast. Competitors listed in the Toast filing include Square Inc (SQ) and Lightspeed Commerce Inc (LSPD). NCR had revenue of $6.2 billion in 2020, which is 7.5x more than Toast had in the same year. Toast, of course, is growing revenue at a higher rate.

NCR Price Action

Shares of NCR could be trading at a discount to Toast based on overall revenue or the potential value of the hospitality business as a standalone unit. NCR shares are down 0.75% to $39.78 as of Friday's close.