Toast stock maintains Buy rating at UBS on strong ARR growth

Investing.com - UBS maintained its Buy rating and $47.00 price target on Toast Inc. (NYSE:TOST) Wednesday, citing the company’s strong annual recurring revenue (ARR) growth as a key investment metric. The stock, currently trading at $43.49, has shown remarkable momentum with a 73.21% return over the past year. According to InvestingPro data, analyst targets range from $28 to $55, reflecting diverse market opinions on this high-growth company.

UBS highlighted that Toast’s total ARR growth remains the most important metric for investors, particularly when considered alongside the company’s strong payback periods, which fall in the mid-teens months range. The firm noted that Toast’s SaaS ARR continues to compound at approximately low 30s percentage rates. This growth trajectory aligns with Toast’s impressive 26.72% revenue growth in the last twelve months, as reported by InvestingPro, which maintains a GREAT financial health score for the company.

The SaaS ARR growth is driven by a combination of mid-20s percentage location growth and mid-single-digit percentage increases in SaaS ARR per location, according to UBS. The firm explained that certain initiatives, such as Toast’s expansion into Enterprise locations, are dilutive to front-book average revenue per user (ARPU). With a current market capitalization of $25.81 billion and trading near its 52-week high, Toast has demonstrated strong market performance. Discover more detailed insights about Toast’s growth metrics and valuation through InvestingPro’s comprehensive research reports.

Despite the ARPU impact, UBS believes Enterprise locations offer attractive payback periods consistent with Toast’s total business. The firm also noted that Enterprise customer lifetime value to customer acquisition cost (LTV/CAC) ratios are better than small and medium-sized business (SMB) restaurants due to reduced churn and longer relationship lifespans.

UBS has updated its SaaS ARR analysis to include front-book SaaS ARR per location considerations by gross add location type, including Enterprise, international, retail food and beverage, and US core restaurant segments, reflecting Toast’s progress in the Enterprise segment and UBS’s expectations for continued success in this area.

In other recent news, Toast Inc. reported first-quarter results that exceeded expectations, prompting the company to raise its financial guidance. The company’s Non-GAAP FinTech & Subscription gross profit was 7% higher than DA Davidson’s forecast, with adjusted EBITDA surpassing projections by 28%. In light of these results, Toast’s management increased their guidance, influencing DA Davidson to adjust their forecasts upward while maintaining a neutral rating and a $40 price target. BMO Capital Markets also responded to Toast’s robust performance by raising the price target to $45 from $44 and maintaining an Outperform rating, citing strong execution and increased guidance for 2025. Piper Sandler raised its price target from $35 to $37, noting Toast’s upgraded EBITDA margin forecast and successful acquisition of enterprise clients like Topgolf and Applebee’s. Meanwhile, Keefe, Bruyette & Woods increased their price target to $42, highlighting Toast’s resilience amid macroeconomic challenges and stable consumer trends. Evercore ISI raised its price target to $34, acknowledging Toast’s strong performance in average revenue per user and annual recurring revenue, while maintaining an In Line rating due to the company’s current market valuation. These developments reflect a generally positive sentiment among analysts regarding Toast Inc.’s financial trajectory and market position.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.