On Tuesday, Baird adjusted its stance on Toast Inc. (NYSE:TOST) stock, shifting the rating from Outperform to Neutral, while setting a price target of $28.00.
The firm noted that although Toast has shown impressive growth with over 30% recurring gross profit growth for several quarters, the recent significant price increase has led to a more balanced risk/reward outlook.
The company is anticipated to maintain robust location growth and potentially experience some yield expansion, which includes increases in software average revenue per user (ARPU) and financial technology yield. Baird also predicts favorable EBITDA margin expansion for Toast.
Despite the downgrade, the firm acknowledges the company's strong performance, expecting the stock to deliver an 8-12% compound annual growth rate (CAGR) over the next three and a half years. This projection suggests that Toast's share value could rise to approximately $35-40 by late 2027.
The adjustment in Toast's stock rating comes after a notable year-to-date rally. The firm's analysis suggests that while Toast continues to be a strong performer in its sector, the current stock valuation adequately reflects the company's growth prospects.
InvestingPro Insights
In light of Baird’s recent rating adjustment for Toast Inc., real-time data and insights from InvestingPro could provide investors with a deeper understanding of the company's financial health and market position. Toast's market capitalization stands at $14.97 billion, and despite a negative P/E ratio indicating that the company is not currently profitable, analysts are optimistic about the future. Specifically, net income is expected to grow this year, and four analysts have revised their earnings upwards for the upcoming period, aligning with Baird's growth expectations.
InvestingPro data also shows that Toast has experienced significant revenue growth of 36.68% over the last twelve months as of Q1 2024, with a quarterly growth rate of 31.26% in Q1 2024. However, the company's gross profit margins remain weak at 22.18%, reflecting Baird's concern over the stock's risk/reward balance. Despite these challenges, Toast's stock has delivered strong returns, with a 95.08% price total return over the last six months and a trading price near its 52-week high, at 96.63% of the peak.
Investors looking for additional insights can find more InvestingPro Tips for Toast, which further detail the company's financial outlook and market performance. For those interested in a deeper dive, using coupon code PRONEWS24 will grant an additional 10% off a yearly or biyearly Pro and Pro+ subscription. With 13 additional InvestingPro Tips available, investors can gain a comprehensive view of Toast's potential trajectory and make more informed decisions.
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