What Happened: Shares of restaurant software platform Toast (NYSE:TOST) fell 6.25% in the morning session after Mizuho analyst Dan Dolev downgraded the stock's rating from Buy to Neutral and lowered the price target from $30 to $16. The price target indicates a potential 13% downside from where shares were traded when the downgrade was announced.
Dolev cited concerns about slowing GPV (gross processing volume) growth, late-cycle risk, potential headwinds from impending student loan payments, and even the impact of GLP-1 drugs like Ozempic on restaurant sales. While some may find this last argument far-fetched, Dolev is clearly taking a stand that it could move the needle. Those who think the impact of Ozempic will not move the needle may cite the fact that it is a diabetes drug, and doctors are hesitant to prescribe it for weight loss thus far.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Toast? Find out by reading the original article on StockStory.
What is the market telling us: Toast's shares are very volatile and over the last year have had 38 moves greater than 5%. In context of that, today's move is indicating the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The biggest move we wrote about over the last year was about two months ago, when the stock gained 12.3% on the news that company reported an impressive "beat and raise" quarter. Second quarter results came in ahead of analysts' expectations. It was also milestone quarter for Toast as it won a deal with Marriott, exceeded $1 billion in ARR, and reached adjusted EBITDA profitability and positive free cash flow for the first time since the IPO. On top of that, the company raised its revenue and adjusted EBITDA guidance for the full year, topping analysts' expectations. Overall, it was a strong quarter for the company.
Toast is up 3.85% since the beginning of the year, but at $18.22 per share it is still trading 31.9% below its 52-week high of $26.76 from July 2023. Investors who bought $1,000 worth of Toast's shares at the IPO in September 2021 would now be looking at an investment worth $291.55.
