Baird analyst David Koning has upgraded Toast Inc. shares, labeling the recent selloff as a buying opportunity. Despite concerns raised by investors following Toast's third-quarter earnings report, Koning finds the restaurant-technology company's prospects appealing.
Promising Growth Potential
While some investors may be nervous about certain trends, Koning views Toast as an attractive investment due to its impressive revenue growth of over 30%. Despite the decline of Toast shares this week, he recognizes the value of a company that continues to experience substantial growth.
Favorable Market Position
Koning appreciates Toast's high market share and ranks it among the best companies and products on his list. The company's presence in the fintech industry, combined with its focus on the restaurant sector, is particularly appealing. Additionally, Toast's current valuation at four times the estimated revenue for 2024 adds to its attractiveness as an investment opportunity.
Encouraging Financial Performance
Koning applauds Toast's incremental margins on earnings before interest, taxes, depreciation, and amortization (EBITDA). The company has demonstrated improving earnings quality, and its ability to generate positive free cash flow in the past two quarters is uplifting to investors. Furthermore, Toast's cash reserves, which account for 15% of its market capitalization, provide a solid foundation for future growth.
Resonating Software and Payments Products
Toast's software and payments products in the restaurant industry have gained significant traction. Koning highlights the enthusiasm displayed by servers who consistently recommend the company's offerings to their bosses. This positive feedback underscores Toast's position as an incredible company that understands the needs of restaurant professionals.
Target Price and Conclusion
Koning has set a target price of $18 for Toast Inc. shares, representing a promising 29% increase from their current level of $13.94. This upgrade reflects Koning's confidence in Toast's potential and suggests that now may be an opportune time to consider investing in the company.