Investing.com -- Shares of Toast Inc (NYSE:TOST) down nearly 3% at $42.3 on Monday after Goldman Sachs (NYSE:GS) downgraded the stock to "neutral" from "buy," citing a more balanced risk-reward profile given stock has more than doubled year to date.
Toast's stock has gained over 135% so far this year, driven by improved operating leverage, price increases supporting gross profit growth, and a transition to a software-based valuation framework, according to the brokerage. However, Goldman said much of that upside is now priced in.
“Against the backdrop of more elevated valuations and limited visibility to an acceleration in fundamentals, we are downgrading stock, despite our positive view, as we believe much of our original thesis around operating leverage and valuation transitioning to a software-based valuation framework has played out.”
Goldman raised its price target for Toast by 32%, reflecting elevated valuations across the payments sector, but expressed caution about potential near-term headwinds such as mixed consumer spending data and foreign exchange impacts.
“We continue to see TOST as one of the best share gainers in the payments space.”
Brokerage also noted certain key risks on the stock, of which the primary is a slower-than-expected customer growth in key markets. While a macroeconomic challenge could also affect restaurant and retail performance.
Goldman also highlighted a potential need for higher investments in new verticals and regions as a key risk.