In January 2024, analysts at financial firm Baird said: toast (TOST 3.35%) It is considered one of the top financial technology stocks for next year. The team's choice proved to be farsighted. Toast stock price will rise 100% in 2024; S&P500 index.
Toast wasn't the only stock to double in value in 2024. rotate (RVLV 0.57%) and pending (Onon 2.26%) They also doubled last year, rising 102% and 103% respectively.
In fact, there are quite a few stocks that more than doubled in 2024. But now I want to group Toast, Revolve, and On together. That's because all three are little-known companies with big profits. Here's why this trio is rising and what I think are the best stocks to buy over the long term.
1. Cheers
When interest rates were zero, investors cared little about profitability because borrowing money was basically free. But as interest rates have risen in recent years, investors have suddenly become very concerned about corporate earnings. And that was a problem considering restaurant technology company Toast had net losses of $275 million and $246 million in 2022 and 2023, respectively. However, in 2024, the situation has improved dramatically, creating a more positive investor community.
Through the first three quarters of 2024, Toast had a net loss of just $13 million, compared to a net loss of $231 million for the same period in 2023. And the reason for the dramatic turnaround is simple. The company's revenues have increased rapidly, but management has kept operating expenses in check.
In reality, there are multiple operating expenses, and Toast does not treat them all equally. On the contrary, spending on sales and marketing continues to increase, increasing by 14% by 2024. However, general and administrative expenses (companywide) decreased by 17%. In other words, the company is still willing to spend on growth, but is cutting corporate expenses wherever possible. This is a sure-fire approach to improving your bottom line.
Toast's third quarter revenue increased 26%, indicating solid growth. And we are now reaching a turning point in profitability. This combination is why the stock price doubled in 2024.
2. Rotate
Revolve stock, which trades at about 1x sales, started 2024 at nearly its lowest valuation in history. The digital-first fashion company is popular with Millennial and Gen Z shoppers, but its stock has been unpopular with investors as its growth has come to a screeching halt. However, the stock more than doubled in 2024 as the top line rose again.
Let's be clear: Revolve is a pretty good business. They are not necessarily seeking to be popular with the masses. The average order value as of Q3 2024 is $303, which is a bit too expensive for widespread adoption. That said, its 2.6 million active customer base is unsurprising and is still growing, with an additional 5% increase in the most recent quarter.
Additionally, Revolve is generating significant revenue by pursuing the higher end of the apparel market. The company has reported positive net income every quarter since going public in 2019. The company is also debt-free and has more than $250 million in cash.
In fact, Revolve's problem for investors was its lackluster growth. But in the third quarter, the company's revenue increased 10%, and management said the fourth quarter was off to a better start than the third. Given its already strong financials, the stock price is rising now that growth is accelerating.
3. On
When some prominent athletic shoe brands decided to embrace direct-to-consumer channels more strongly during the global pandemic, shelf space in shoe retailers was pounced on by companies like On. It left a huge gap to gain market share. Considering On's net sales grew 69% and 47% in 2022 and 2023, respectively, it's safe to say it's certainly gaining market share.
Through the first three quarters of 2024, On's net sales increased an additional 27% compared to the comparable period in 2023. To be clear, about one-third of the company's sales come from direct-to-consumer sales. However, as a young shoe brand, it doesn't have the same name recognition as more established brands. But it's growing rapidly as the company's shoes reach more and more consumers.
That means On's net sales have roughly doubled over the past two years. And this rapid sales growth allowed management to charge full list price for the shoes, and gross profit margins rose to an all-time high of over 60%. It also already boasts a high-quality operating margin of over 9%.
ONON Revenue (TTM) Depends on the data Y chart
These are excellent financials for On, and investors are understandably optimistic. Moreover, while On is gaining scale, the athletic shoe space is huge and there is still plenty of room to further increase market share from here.
Here are my picks for 2025 (and beyond)
I believe Revolve is a solid business, but I think it's targeting a fairly narrow segment of the market. For me, the long-term upside is uncertain. And even though growth has rebounded, the 10% increase in sales is still quite modest, further suggesting that growth remains strained. This excludes Revolve stock from my selection here.
On is clearly growing and in good financial shape. However, consumer preferences for shoes can change in unexpected ways. In other words, establishing a lasting competitive advantage can be difficult. For this reason, we believe it is important to purchase shoe stocks at appropriate valuations.
In stock on 15x sale do not have Trade at an appropriate valuation. It may still work out well for investors. But there doesn't seem to be much of a safety margin here. That is why I am not choosing On stock today either.
This makes Toast stock my pick for 2025. But I left out the biggest reason to be optimistic about its growth potential next year. Management says it will be easier to win new business as the market becomes more saturated. In other words, the technology grows by word of mouth as more restaurants start using it.
Toast is now reaching the tipping point that executives are seeking in many markets across the United States. Therefore, we expect to maintain high growth next year and beyond. And if business efficiency improves and profits soar, the stock price could rise even more.
