Toast's stock got burnt this week, but this bull says it could rise 30% from here

By Emily Bary

'This is an incredible company,' Baird analyst says

The recent selloff in Toast Inc. shares presents a buying opportunity, a new bull says.

Baird analyst David Koning upgraded the stock to outperform from neutral Friday, writing that the restaurant-technology name looks appealing despite a number of trends that spooked investors coming out of Toast's (TOST) third-quarter earnings report Tuesday afternoon.

Toast shares declined more than 13% in Wednesday's session. They're on track to end the week down more than 20%, as Wall Street appears concerned about factors including the slowing growth of subscription revenue per location and a lessening impact from Toast Capital, a lending product for customers.

"While we get why the stock is down on some of these factors, we view a company growing revenue at 30%+ as very attractive," Koning wrote.

He is also enticed by the fact that the stock is trading at four times estimates for 2024 revenue.

"We like big market share gainers (Toast is one of the best companies/products on our list), we like restaurants, we like fintech, and we like Toast at 4x 2024E revenue," he wrote.

Koning further cheered the company's incremental margins on earnings before interest, taxes, depreciation and amortization. Toast in general is seeing improving earnings quality, according to Koning, who is encouraged by the company's ability to drive positive free cash flow in the past two quarters. Cash, meanwhile, makes up about 15% of Toast's market capitalization.

Plus, in his view, the company's software and payments products for the restaurant industry are resonating.

"This is an incredible company," he wrote. "Servers ask their bosses to get it ... we hear that repeatedly."

Koning now has an $18 target price on the stock, about 29% above Friday's recent level of $13.94.

-Emily Bary

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

11-10-23 1216ET

Copyright (c) 2023 Dow Jones & Company, Inc.