On Wednesday, RBC Capital adjusted its outlook on Toast Inc. (NYSE:TOST), a company specializing in restaurant management software, raising the price target to $27 from $23 while maintaining a Sector Perform rating. This adjustment comes in the wake of Toast's recent financial results which showcased a robust quarter with notable revenue and adjusted EBITDA surpassing expectations.
The company's commitment to cost optimization was evident as research and development (R&D) and general and administrative (G&A) expenses saw a significant year-over-year decline. Toast's management expressed growing confidence in its trajectory towards achieving GAAP EBIT profitability, anticipating it to be near positive by the end of fiscal year 2024.
The improved financial visibility into fiscal year 2024, coupled with a substantial increase in broader guidance, has influenced RBC Capital's valuation framework, prompting the firm to set a new price target. The target is based on a 35 times multiple of the firm's fiscal year 2025 estimated enterprise value to EBITDA.
The analyst highlighted the company's execution in its cost optimization plan, which has contributed to the positive shift in financial expectations. Toast's performance has led to an upgraded outlook, reflecting a potential for growth and profitability in the near future.
InvestingPro Insights
As Toast Inc. (NYSE:TOST) continues its journey towards profitability, InvestingPro data and tips provide a deeper dive into the company's financial health and stock performance. According to real-time data, Toast's market capitalization stands at $13.13 billion, indicating a significant presence in the market. Despite not being profitable in the last twelve months, revenue growth remains strong at 41.52% as of the last twelve months leading up to Q1 2023, with a quarterly growth rate of 34.9% in Q1 2023.
While the InvestingPro Tips highlight Toast's weak gross profit margins at 21.71%, the company's liquid assets have the strength to cover short-term obligations. Investors might also take note of the stock's volatility and the high Price / Book multiple of 11.0, suggesting a premium valuation relative to the company's book value. On the positive side, analysts predict profitability this year, and the stock has experienced a strong return over the last three months, with a 24.31% total price return.
For those looking for a more comprehensive analysis, InvestingPro offers additional insights, including 9 more InvestingPro Tips for Toast Inc. To gain access to these valuable tips, consider using coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which could further inform investment decisions.
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