Thursday, shares of Toast Inc. (NYSE: NYSE:TOST) experienced a shift in market sentiment as DA Davidson adjusted its outlook on the company. The firm downgraded the stock from Buy to Neutral and revised the price target to $38.00 from the previous $44.00. According to InvestingPro data, Toast shares have declined nearly 12% over the past week, despite an impressive 156% gain over the last year.
The company, currently valued at $21.66 billion, appears slightly overvalued based on InvestingPro's Fair Value analysis. This change was prompted by Toast management's recent statements regarding margin expansion expectations for 2025, which were shared during a virtual chat at an investment conference.
The management's commentary on margin expansion was cited as a key factor for the reassessment of Toast's stock. DA Davidson acknowledged Toast's strategic efforts in positioning itself as a future leader in integrated software and payment solutions for the restaurant and retail sectors.
InvestingPro data reveals that Toast maintains a modest gross profit margin of 23.36%, while showing strong revenue growth of 29.5% in the last twelve months. For deeper insights into Toast's financial metrics and growth potential, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
However, the analyst expressed concerns that the recent statements about margins did not align with the firm's projections, leading to the downgrade.
Toast, known for its comprehensive technology platform designed for restaurants, has been working towards expanding its offerings and improving its financial metrics. The company's focus on long-term growth and market leadership in its vertical has been a part of its core strategy. Nonetheless, the unexpected commentary on future margin expansion has introduced a level of uncertainty that prompted the analyst to reassess the stock's valuation.
The new price target of $38.00 reflects a more cautious stance on the company's stock, considering the potential risks related to the margin expansion strategy. The lowered target is indicative of the revised expectations for the company's financial performance in the coming years.
Investors and market watchers will be paying close attention to Toast's future financial disclosures and management commentary to gauge the company's progress toward its stated goals.
The current neutral rating suggests a wait-and-see approach as the company navigates the challenges of margin expansion and market leadership aspirations. InvestingPro analysis indicates a "GOOD" overall financial health score, with 13 additional ProTips available to subscribers, offering crucial insights into Toast's future prospects. The company's next earnings report is scheduled for February 13, 2025.
In other recent news, Toast Inc. has experienced a series of financial adjustments following its third-quarter earnings report. Baird maintained its neutral rating on Toast with a steady price target of $38.00, adjusting its expectations due to the company's new guidance on future margins.
This was followed by Goldman Sachs (NYSE:GS) downgrading the stock from Buy to Neutral but increasing the price target to $45.00. DA Davidson, despite lowering its stock target for Toast Inc. by 20%, maintained a Buy rating due to strong EBITDA growth.
Mizuho (NYSE:MFG) Securities increased its price target for Toast from $33.00 to $40.00, maintaining an Outperform rating. These adjustments reflect Toast's robust Q3 performance, where the company reported substantial growth, adding roughly 7,000 net new locations, reflecting a 28% year-over-year increase. Recurring gross profit streams grew by 35%, with adjusted EBITDA hitting $113 million.
In response to these developments, Toast launched new customer engagement products and expanded into food and beverage retail and international markets, including a partnership with Potbelly (NASDAQ:PBPB) Sandwich Works.
Despite an increase in operational expenditures by 11% due to investments in sales, marketing, and research and development, Toast projects an adjusted EBITDA between $352 million to $362 million for the full year, reflecting a 26% margin. These are the recent developments surrounding Toast Inc.
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