The market is off to a tentative start in 2024. The momentum that picked up at the end of 2023 has worn off, and investors are waiting for more positive news before sending the market higher.
That means there are still bargains out there, and many stocks are waiting to pop. Consider buying Roku (ROKU -10.29%), Toast (TOST 3.42%), and Revolve Group (RVLV 1.96%) before they take off.
1. Roku: A leader in streaming
Roku sells streaming devices and operates an ad-supported streaming platform. Both of these businesses are back to growth after each experienced pressure at different points, and the company is well positioned for any rebound in advertising spending.
Revenue increased 20% year over year in the 2023 third quarter. Device revenue increased 33%, and platform revenue increased 18%. Driven by ad revenue, the platform segment is the bigger business by far, accounting for 86% of total sales in the third quarter. The device segment is Roku's avenue for bringing new users into its ecosystem.
Strong viewership and engagement are important metrics for Roku to generate higher ad spending from clients, and that's where its biggest opportunities are. In the third quarter, active accounts increased 16% year over year, and viewing hours increased 22%. Both figures were up sequentially as well. Streaming hours for The Roku Channel increased 50%, and it accounted for 3% of all streaming in September according to Nielsen.
The platform segment felt the impact of inflation last year as companies cut their ad spending, but that trend is starting to reverse, and 2024 could bring soaring revenue growth.
Roku stock climbed 125% last year, but it's still 82% off its all-time high as of this writing. Shares trade at a price-to-sales ratio of 3.6, and this bargain stock has room to run.
2. Toast: Solving pain points in a huge global industry
Toast has a simple but compelling model of automated hardware and software tools for the restaurant industry. It offers a range of products and services to fit various needs in this niche with everything a restaurant needs to operate, including point-of-sale devices, self-ordering kiosks, payment processing, and online ordering, plus services like marketing and loyalty programs.
Management believes Toast's competitive edge lies in both its comprehensive offerings and the fact they're purpose-built for the restaurant industry. In the third quarter, it added 25,000 new locations from the year-ago period for a total of 99,000, and it sees a serviceable addressable market of $15 billion. Annualized recurring revenue (ARR) was $1.2 billion in the third quarter, a 40% increase year over year.
Despite this rapid growth, Toast stock is down 16% over the past year. The company is still posting losses, but its bottom line is improving. Net losses narrowed from $98 million last year to $31 million in the latest quarter, and gross profit increased 50% to $226 million.
At the current price, Toast stock trades at a cheap valuation, just 2.6 times trailing-12-month sales. As the top and bottom lines continue to rise, Toast could be a standout stock this year.
3. Revolve Group: A huge market opportunity
Revolve was enjoying incredible growth before inflation knocked it down. It operates two sister fashion retail websites, Revolve and FWRD, that offer trendy, stylish clothing for women. It stands out from traditional fashion retailers in several ways.
For one, it's an exclusively online operation and doesn't have the high expenses of buying or renting real estate. It's also been built on a digital artificial intelligence (AI) backbone that informs business operations, inventory management, and more. That's why it can easily identify what's selling and what's not, adjusting merchandise selection quickly and meeting demand as it changes.
It's also heavily tied to social media and influencers, working with celebrities and other personalities to market its products and create capsule collections.
Revolve typically doesn't mark down a large percentage of products, and its high full-price sales rate leads to robust profits. In this climate, many shoppers have scaled back on their discretionary spending. Revolve is putting more products on sale in an effort to rebalance its inventory at both Revolve and FWRD.
So while active customers and total orders placed increased 12% and 9%, respectively, in the third quarter, revenue declined 4% year over year, and net income was down 73%. That weakness is behind the stock's 40% decline over the past year. But with inflation easing and the economic outlook improving, consumers will up their spending again. As it does, Revolve can rebound in 2024 as the future of retail fashion.
