What happened

Shares of restaurant technology company Olo (OLO 0.42%) got a boost this week after an analyst positively changed his rating on the stock.

Olo stock had been missing out on the market rally, with shares basically flat year to date. However, after the analyst upgrade, Olo stock gained almost 16% this week as of 1 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence. This easily beat the 1% return for the S&P 500.

So what

Brent Bracelin is an analyst with Piper Sandler and has covered Olo stock for some time. In August, he lowered his rating from buy to hold and lowered his price target to $9 per share. However, Bracelin upgraded Olo stock yesterday to an “overweight” rating from a “neutral” rating, according to StreetInsider.

Meanwhile, he kept his price target of $9 per share. But that represents roughly 25% upside from where the stock trades now.

Over the past year, Olo stock has traded down, whereas competitors Toast and Shift4 Payments are both beating the market over this time span. The perception is that this growth stock is losing market share to its peers, which is why Bracelin’s vote of confidence was so powerful.

OLO data by YCharts

Now what

There is some truth to investors’ fears. Of the three restaurant technology companies mentioned, Olo is the slowest-growing right now. Revenue in the first quarter of 2023 was up 22% year over year, whereas it’s guiding for about 17% full-year revenue growth. Moreover, investors are rightly concerned that it’s lost some business — only 76,000 locations were using Olo’s technology at the end of Q1, a drop of 7% from the prior-year quarter.

That said, Olo’s management still believes it has a big opportunity ahead and that it will grow as customers adopt more of its available software modules. Investors should listen for updates in this area when the company reports financial results for the second quarter of 2023 on Aug. 1.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Olo. The Motley Fool recommends Shift4 Payments. The Motley Fool has a disclosure policy.

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