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Amazon has been one of the best stocks to own ever. While it can still be a good addition to your portfolio, it doesn’t offer the same early-stage growth opportunities as it did 20 years ago.
If you’re looking for Amazon-style early profits, consider the following: toast (NYSE:TOST), dutch brothers (New York Stock Exchange: Brothers)and On hold (NYSE:Onon) — 3 new growth stocks that are taking advantage of incredible market opportunities.
Strategy for the restaurant market
Toast creates software for the restaurant industry. The company touts its comprehensive services to improve restaurant operations, all available on a single platform that combines all parts of the process. This results in significant cost savings and efficiencies at every level. Additionally, Toast claims that its products are built specifically for this industry, as opposed to competitors that offer software for a variety of industries.
Toast has a huge market opportunity to improve on the status quo for traditional restaurants that are jumping on new technology like point-of-sale devices but still using old methods like paper-and-pen ordering. It already has a sizable portion of the U.S. market, numbering at 860,000 locations, but there’s a lot more to gain. The number of restaurant outlets has reached 22 million, and the global opportunity is still largely untapped.
The company has expanded its operations in these markets and is showing high growth. Annual recurring revenue, a standard top metric for software-as-a-service companies, rose 35% year over year to $1.2 billion in the fourth quarter. Gross profit increased 43% to $226 million, and margin was 21.8%, up more than 1 percentage point from the prior year. Its net loss narrowed from $99 million to $36 million, and it generated free cash flow of $81 million after an outflow of $29 million last year. The total number of locations served increased by 34% from the previous year to 106,000 locations.
Toast’s price-to-sales ratio is 3.4x, making it a bargain for a high-growth stock with great potential.
Fun coffee = big opportunity
Dutch Bros. is a coffee shop chain headquartered in Oregon but with locations throughout the United States. Although it is virtually no different from other chains in terms of the service it offers, it focuses on speed and a friendly atmosphere, and its primarily drive-thru concept resonates with many people. To coffee lovers in his 16 states where the company operates.
What’s interesting about this story is that Dutch Bros is still in its early stages. At the end of 2023, there will be 831 stores, a large enough sample size to show it’s a viable concept that can scale. Management sees an opportunity to open up to 4,000 stores over the next few years, with plans to open 165 stores this year. The company recently brought on a new CEO with food and coffee industry experience, leveraging his name recognition and solid execution to scale and capitalize on opportunities to take the company to the next level.
Revenue continued to grow at a high rate (31% in 2023), and net income turned from a loss of $19 million in 2022 to a profit of $10 million in 2023.
Dutch Brothers’ price-to-sales multiple is just 2x, even lower than Amazon’s, so its stock could skyrocket this year.
The next big name in sneaker world
You may have never heard of On Holding. This fairly small Swiss-based company has become known for its CloudTec sneakers, but apart from its popular footwear, it also has a line of high-end sportswear.
When I say popular, I mean that it has a large and loyal fan base that buys the product through inflation and other economic fluctuations. Management said it is gaining market share at an “unprecedented rate” and plans to cater to new demographics this year. Sales in 2023 increased by 47% over the previous year, and management is guiding him to increase sales by his 30% in 2024. Net income increased 38% year over year.
On Holding inspires such strong brand loyalty and is able to achieve high list price sales and high profit margins because its target market is resilient. Gross profit margin for the fourth quarter of 2023 was 60.4%, and management expects to maintain gross profit margin of at least 60% in 2024.
There is a huge opportunity for On Holding as it gains market share and becomes more widely known. Even in Switzerland, the company’s brand awareness is less than 50%, and in the United States it is only 9%. As more affluent and resilient shoppers become acquainted with the company’s sneakers, they have incredible potential to turn shoppers into long-term customers.
At 7x sales, On Holding is more expensive than Toast or Dutch Brothers, but it offers a strong growth opportunity and could soar this year.
Should you invest $1,000 in Toast right now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Jennifer Cybill has no position in any stocks mentioned. The Motley Fool has positions in and recommends Amazon and Toast. The Motley Fool recommends On Holding. The Motley Fool has a disclosure policy.
Forget Amazon: These 3 Hot Growth Stocks Could Soar This Year Originally published by The Motley Fool
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