On Thursday, Goldman Sachs (NYSE:GS) reiterated its Buy rating on Toast Inc. (NYSE:TOST) with a price target of $29.00. Following Toast's Investor Day, the firm's analyst noted the company's strategic plans and updated guidance.
Despite Toast's shares underperforming after the event, the analyst conveyed a positive outlook on the company's balance between profitability and investment in new markets, as well as its potential to further tap into the total addressable market (TAM).
Toast, which operates in the technology sector providing restaurant management and payment processing solutions, shared its growth targets for the next two to three years, aiming for over 20% growth.
This target is slightly below the consensus estimates of approximately 29%, 27%, and 24% for the years 2024, 2025, and 2026, respectively. However, Goldman Sachs views the company's growth rate guidance for 2024, which is in the high-20s, as a conservative estimate, suggesting there is limited downside risk to the street's top-line numbers.
The analyst also highlighted Toast's historical trend of surpassing its financial targets, which adds credibility to the company's growth projections. Moreover, the firm's mention of Toast's two to three-year goal to achieve the Rule of 40 on a GAAP basis was seen as a strong indicator.
The Rule of 40 is a financial metric used by software companies, which suggests that a company's combined growth rate and profit margin should be above 40% to be considered performing well.
Goldman Sachs' assessment implies that Toast is on track to demonstrate solid leverage and increasingly robust valuation support over time. The reaffirmed price target of $29.00 reflects the firm's confidence in Toast's strategic direction and its ability to execute on its financial goals.
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