On Monday, Baird increased its price target for Toast Inc. (NYSE:TOST) shares to $28 from $24, while reaffirming its Outperform rating. The adjustment comes as the firm anticipates a strong first-quarter performance from the cloud-based software company.
According to Baird's evaluation, several factors contribute to the positive outlook for Toast Inc. The company has issued guidance for the first quarter and the full year 2024, taking into account the challenging weather conditions experienced in January, which affected the restaurant industry. However, a recovery was noted in February and March, providing a solid foundation for the company's upcoming financial results.
The analyst also highlighted the potential for Toast Inc. to exceed yield expectations. This optimism is based on favorable debit mix trends observed in banks during the first quarter, coupled with the possibility for Toast Inc. to negotiate lower processing costs, which could further enhance profitability.
Toast Inc.'s strong incremental margins have also been a point of interest. Despite conservative guidance for 2024, which assumes lower incremental margins than those achieved in the second half of 2023, the company's financial discipline is underscored by recent job cuts aimed at streamlining operations.
The firm's positive stance on Toast Inc. is rooted in the company's substantial growth profile and the aforementioned factors that are expected to contribute to a strong start to 2024. The updated price target reflects Baird's confidence in the company's ability to outperform market expectations and continue its growth trajectory.
InvestingPro Insights
Baird's recent price target increase for Toast Inc. (NYSE:TOST) aligns with some of the optimistic metrics and InvestingPro Tips for the company. With a notable revenue growth of 41.52% over the last twelve months as of Q1 2023, Toast's top-line performance seems to justify some of the confidence. This growth is further supported by a substantial 34.9% quarterly revenue growth, indicating a strong start to the year. Despite not being profitable over the last twelve months, analysts predict the company will turn a profit this year, which could be a turning point for investors watching the bottom line.
InvestingPro Tips suggest that Toast's stock price movements are quite volatile, which may be reflected in the significant three and six-month price total returns of 29.08% and 32.7%, respectively. This volatility, coupled with the fact that Toast does not pay a dividend, might make the stock more suitable for growth-oriented investors rather than those seeking income. Additionally, the company is trading at a high Price / Book multiple of 10.93, which could indicate that the market has high expectations for future growth.
While Toast suffers from weak gross profit margins, currently at 21.71%, the company's liquid assets do exceed short-term obligations, which suggests a degree of financial stability in covering short-term debts. For investors interested in deeper analysis, there are more InvestingPro Tips available for Toast Inc. Using coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access these valuable insights.
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