Toast Inc. (NYSE: TOST) has piqued the interest of analysts recently, particularly with BMO Capital Markets initiating coverage with an “outperform” rating. The investment firm has outlined a target price of $45 for Toast shares. This valuation reflects not only Toast’s current standing in the U.S. restaurant technology sector but also their potential for long-term growth amid changing market dynamics.
Toast has established itself as a formidable player in the U.S. restaurant technology and payment solutions landscape, currently holding an estimated 14% market share in a highly fragmented sector with about 875,000 restaurant locations. Given the prevalence of outdated legacy systems in many of these establishments, BMO’s analysts believe there is substantial room for Toast to expand its reach. The strategic positioning of Toast allows it to tap into the increasing demand for innovative solutions that streamline operations and enhance customer experiences.
Moreover, Toast is beginning to venture beyond U.S. borders, eyeing international markets such as Canada, the U.K., and Ireland. These regions present approximately 280,000 additional locations ripe for disruption. The company’s entry into new markets signifies a critical step toward increasing their overall footprint and amplifying revenue streams.
Central to BMO’s positive outlook on Toast is the company’s impressive unit economics. Impressively, Toast boasts a lifetime value (LTV) to customer acquisition cost (CAC) ratio exceeding 6:1. This metric highlights a healthy business model, suggesting each customer contributes significantly more over their lifetime compared to the cost incurred in acquiring them. Such robust economic fundamentals provide a cushion against the broader pressures that the payments industry currently faces.
Despite the prevailing challenges, Toast is projected to sustain or even enhance its profitability metrics. BMO forecasts indicate that by 2026, Toast’s earnings before interest, taxes, depreciation, and amortization (EBITDA) could exceed market consensus by approximately 5%, signaling potential growth that investors should pay attention to.
BMO’s target price of $45 is predicated on a valuation of roughly 34 times the firm’s assessed earnings per share for 2026. Though this premium valuation might raise eyebrows, analysts justify it by referencing the forecasted 34% growth in earnings for 2027. Investors are urged to consider that if Toast surpasses prevailing expectations in critical performance metrics—such as recurring gross profit per location—there could be even greater upside potential.
Furthermore, the recent dip in Toast’s stock price, which fell by 15%, presents a compelling opportunity for potential investors. The combination of a reduced price point and positive EBITDA guidance for 2025 signals a timely entry point into what many analysts deem an exceptionally positioned company.
As Toast Inc. continues to innovate and expand its product suite while capitalizing on pricing strategies, the prospects for robust growth remain strong. BMO Capital Markets’ supportive analysis underscores the confidence in Toast’s strategic direction and operational strength. For investors exploring opportunities within the technology and payments sectors, Toast appears to be a noteworthy contender with significant potential to shape the future of restaurant technology.