Olo's 13.6% Surge: A Signal of Stronger Gains Ahead?

Olo Inc. (OLO) shares rocketed 13.6% recently on news of its expanded partnership with Red Lobster and the announcement of a $2 billion acquisition by Thoma Bravo. But is this a fleeting pop or a sign of sustainable momentum? Let's dive into the Zacks Rank dynamics, earnings revisions, and sector trends to find out.

The Zacks Rank Turnaround: From Hold to Buy

Olo's journey from a Zacks Rank #3 (Hold) to a Zacks Rank #2 (Buy) is critical here. The upgrade came after Q1 2025 earnings smashed estimates: revenue hit $66.5 million (vs. $64.2 million expected), and EPS came in at $0.05—beating the $0.047 consensus. Analysts then revised their forecasts upward: the consensus EPS for the current quarter jumped by 150%, while full-year estimates rose by 92.86%. This isn't just noise—it's a buy signal from the Street.

Earnings Revisions: The Fuel in the Tank

The key here is momentum. Olo's Q2 2024 results already showed a 27.6% revenue surge, but the real fireworks came in Q1 2025. Analysts are now pricing in 17.5% revenue growth for 2025, with earnings expected to jump 40.9%. This isn't just about past performance—it's about future expectations. The stock's average price target has been raised to $9.50, implying a 41% upside from recent levels.

But wait—what's driving these revisions? Two catalysts:

1. The Thoma Bravo Deal: At $10.25/share, this $2 billion buyout gives OLO a 65% premium to its pre-announcement price. The private equity firm's track record of scaling SaaS companies (Veracode, Anaplan) suggests Olo's platform could be turbocharged with new features and acquisitions.
2. Red Lobster's Return: The chain's recommitment to Olo's Catering+ and reputation management tools isn't just a PR win—it's a $800 million revenue lever for Olo. This partnership signals broader ecosystem strength in a sector where 75% of restaurants now use cloud-based solutions.

Sector Trends: The Restaurant Tech Boom

Olo isn't just riding a stock wave—it's in the heart of a $23 billion market growing at 12% annually (McKinsey). Competitors like Toast (TOST) and Upserve are scrambling, but Olo's 88,000 active locations and 750+ brand partnerships create a moat. The Zacks Industry Rank for “Internet—Software” (where Olo sits) is in the top 26% of all industries—meaning it's outperforming 74% of sectors.

Risks: The Clouds on the Horizon

No bull run is risk-free. Here's what to watch: - Regulatory Delays: The Thoma Bravo deal faces antitrust scrutiny. A prolonged hold-up could dent momentum.- Insider Selling: Executives offloaded $864k in shares recently, hinting at profit-taking. Buyers should confirm this isn't a sign of doubt.- Valuation Stretch: At a P/E of 505x, Olo isn't cheap. A misstep in Q2 2025 results could spark a correction.

The Bottom Line: Buy the Dip, But Stay Alert

This is a buy the dip stock. The Zacks Rank #2 and analyst upgrades suggest the upward momentum isn't over. Here's how to play it: 1. Entry Point: $8.50-$9.00 (a 10-15% pullback from recent highs). 2. Target: The $10.25 acquisition price is a near-term ceiling, but if the deal gets delayed, Olo could rally to $12 on growth bets. 3. Stop Loss: Below $7.50—this would signal a breakdown in momentum.

Final Take

Olo's 13.6% surge isn't a fluke—it's a buy signal from the market's smart money. With a Zacks Rank #2, blockbuster earnings revisions, and tailwinds from sector consolidation, this could be the start of a multi-month rally. But don't let greed override caution: lock in gains if it hits $10, and keep a close eye on the Thoma Bravo deal's progress.

Action Alert: If you're in, set a target. If you're out, wait for a dip—then pounce. This isn't a stock for the faint-hearted, but it's a prime opportunity in the red-hot restaurant tech space.