I spent this past weekend going over the hundreds of companies reporting earnings this week. It's an interesting exercise, stumbling across names that once interested me but that I never acted upon. It's a reminder to check up on them after they report. It's also an opportunity to buy them before they report if I conclude that the bullish thesis and valuation are stronger than before.
After kicking in with my due diligence I found a pair of stocks that I would initiate positions in on Monday. When I told my wife later on Monday that I had just bought some Toast (TOST 1.98%) and FIGS (FIGS 1.80%), I got a funny look. Oh. No. I wasn't prepping for some trendy brunch. I just think that restaurant tech darling Toast and fashionable scrubs distributor FIGS have attractive price points heading into their financial updates.
As of Wednesday's close it seems like a diet of Toast and FIGS has caused me indigestion, with my positions down 5% and 11%, respectively. Both stocks will move even more -- up or down -- on Friday after they report. They are both broken IPOs from the class of 2021, but I think they have the potential to bounce back. Let's check out why I think this is a winning recipe.
Image source: Getty Images.
Toast
If you dine out or even pick up some takeout regularly, you've probably used a Toast reader to settle up a transaction. It's happening a lot these days. The number of locations turning to Toast have soared 40% to 68,000 as of the end of June. We'll soon find out where things stand for September.
For the customer, Toast may seem like little more than a means of paying and tipping for food. There's a whole world going on in the Toast ecosystem at the other end of the transaction. Toast is a full-featured cloud-based enterprise platform for restaurant operators. Beyond ringing up orders, it manages inventory levels, sorts payroll and staffing matters, and even plays nice with third-party delivery apps. It's a fully integrated one-stop shop for managing -- and even marketing -- an eatery.
It's a big business, especially as restaurants get more comfortable dipping deeper into the Toast ecosystem. Revenue soared 58% in its previous quarter, with annual recurring revenue up a beefy 59%.
There's a case to be made that restaurant stocks will suffer if we sink our teeth deeper into a recession, but Toast gives the survivors a way to stand out. Inflationary fears may be a concern for most industries, but keep in mind that Toast gets a piece of the higher menu boards. It processed a whopping $23.3 billion in gross payment volume for its customers in the second quarter, a 62% year-over-year jump. There's dough in that Toast.
FIGS
A couple of years ago, I found myself on a subway train wrapped in ads for FIGS. I was surrounded by artwork of stylish and flattering scrubs in a sea of colors. I had always assumed that medical scrubs were issued by hospitals or doctor's offices, but apparently there is room for healthcare workers to inject a little fashion into their workday.
FIGS is a direct-to-consumer apparel brand for the healthcare industry. Its popularity is widening. The 2 million active customers who have placed orders over the previous 12 months are up 26% over the past year. Each spent an average of $227 a year, as there's strong appetite for scrubs that prioritize comfort, durability, function, and style.
You won't find a FIGS rack at a mass-market or even specialty retailer. FIGS sells its head-turning apparel to healthcare professionals online.
If Toast seems to have fallen out of favor at less than half of last year's IPO price, FIGS has plummeted to less than a third of its $22 debutante price tag. Some investors are concerned with demand starting to subside in a soft economy as even healthcare workers pare back on premium apparel. Some may also have seen the surge in FIGS sales during the early stages of the pandemic as a temporary spike, even though -- at the end of day -- it broadened its brand awareness and customer base. The upside is there for FIGS in catering to an industry that must remain fully staffed in all economic environments.
Don't mind me. I'll just enjoy my Toast and FIGS for now.
