A cautionary note for all the stock analyst watchers out there -- a price target increase does not automatically mean a buy recommendation.
A notable example of this dichotomy can be seen in a change one pundit made to his price target on specialty tech stock Toast (TOST 0.27%). The analyst is concerned that the company will face mounting competition, and will struggle to win the large clients it needs to power key fundamentals higher.
Is Toast toast?
The bearish booster is Wells Fargo Securities analyst Jeff Cantwell. In mid-April, while bumping his Toast fair value estimation $2 higher to $17 per share, he nevertheless reiterated his recommendation of underweight (sell, in other words). The price target (which the analyst expects will be reached within the next 12 months) is 25% below the stock's current price.
In his research note covering the price target shift, Cantwell zeroed in on the full-year 2024 guidance proffered by Toast, a company that specializes in restaurant ordering and management software. Describing Toast's forecasts for the year as "a mixed bag," the analyst said that the company's key drivers are the signing of new restaurants, the level of gross payment volume (GPV) per location, and average revenue per user (ARPU).
Of these, Cantwell wrote that "While a case can be made for each [key performance indicator] to outperform in isolation, we struggle to envision all three outperforming in unison given our view that average location size should continue to shift lower."
Competition and high valuations
Toast hews to the classic model of a tech start-up -- it typically loses money on the bottom line while posting occasionally impressive revenue growth numbers. Additionally, while the company's technology is certainly useful for restaurants and other businesses in the food and beverage space, competitors exist -- a notable example being Block -- and Toast's valuations are rather high. I think Cantwell's take on the stock is accurate.
