On Thursday, Deutsche Bank (ETR:DBKGn) maintained its Hold rating on shares of Toast Inc. (NYSE:TOST) with a consistent price target of $24.00. The firm's stance comes after Toast's recent analyst day held in New York, where the company outlined its growth strategies and future opportunities.
Toast Inc. emphasized its plans for expansion by scaling locations, enhancing monetization through pricing and new products, entering new market segments such as retail, and broadening its geographic reach. The company also aims to improve operating leverage as it grows.
Despite the outlined growth strategies, Deutsche Bank noted that Toast's updated mid-term outlook did not meet investor expectations, particularly with less information than anticipated regarding price increases.
This has been viewed as a contributing factor to the recent decline in the company's share price. Toast Inc. now anticipates achieving the GAAP Rule of 40—a measure of financial performance combining revenue growth and profit margins—in the next two to three years. Additionally, the company has set a new long-term adjusted EBITDA margin goal of over 40%.
In light of the updated adjusted EBITDA margin guidance, Deutsche Bank has increased its adjusted EBITDA forecasts for fiscal years 2025 and 2026. The estimates have been raised by approximately $12 million for FY25 and by about $35 million for FY26, resulting in new projections of roughly $462 million and $685 million, respectively. Despite these adjustments, the firm's overall rating remains unchanged at Hold, signaling a neutral stance on the stock's potential for the near future.
Toast Inc. is focused on leveraging its key priorities to unlock growth, but the recent sell-off in shares indicates that investor sentiment may still be cautious. The company's efforts to drive growth through various strategic initiatives are clear, yet the impact of these plans on financial performance will be closely watched by investors and analysts alike.
InvestingPro Insights
As Toast Inc. (NYSE:TOST) continues to navigate through its growth strategies, the latest data from InvestingPro provides a snapshot of the company's financial health and market performance. Toast's market capitalization stands at $13.12 billion, reflecting its significant presence in the industry. Despite a negative P/E ratio of -55.21, indicating that the company is not currently profitable, analysts expect net income to grow this year. This is supported by four analysts revising their earnings upwards for the upcoming period, hinting at potential optimism regarding the company's profitability.
Moreover, Toast's revenue shows a strong upward trajectory with a growth of 36.68% over the last twelve months as of Q1 2024. This aligns with the company's strategic initiatives aimed at expansion and scaling. However, it's important to note that Toast suffers from weak gross profit margins of 22.18%, which could be a point of concern as the company scales its operations. Additionally, the stock has experienced a large price uptick of 58.91% over the last six months, which may attract investors looking for growth stocks.
For those interested in a deeper dive into Toast's financials and market potential, InvestingPro offers additional insights and tips. With the use of coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, unlocking access to an expansive array of investment tools and analytics. Currently, there are 9 additional InvestingPro Tips available for Toast Inc., which can provide further guidance to investors considering this stock.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.