Amazon has been one of the best stocks to own ever. It could still be an excellent addition to your portfolio, but it doesn't offer the same early-stage opportunities for growth that it did 20 years ago.
If you're looking for early Amazon-style gains, consider Toast (TOST 3.42%), Dutch Bros (BROS -1.04%), and On Holding (ONON 2.66%) -- three newer growth stocks that are capitalizing on incredible market opportunities.
Capturing the restaurant market
Toast makes software for the restaurant industry. It touts itself as offering a comprehensive selection of services to make restaurants work better, all available in a single platform that combines all parts of the process. This can lead to serious cost savings and efficiency at every level. Toast further claims that its offerings are purpose-built for this industry, in contrast with some of its competitors that offer software for various industries.
Toast has a large market opportunity in elevating the current status of legacy restaurants that have hopped on to some new technology, like point-of-sale devices, but still do other things the old way, like paper-and-pen ordering. It already has a nice chunk of the U.S. market, which it counts as 860,000 locations, but there's plenty more for the taking. The global opportunity is still largely undertapped, with 22 million restaurant locations.
The company is demonstrating high growth as it expands its footprint in these markets. Annualized recurring revenue, a standard top-line metric for software-as-a-service companies, increased 35% year over year to $1.2 billion in the fourth quarter. Gross profit increased 43% to $226 million, with a 21.8% margin, more than 1 percentage point higher than last year. Net loss contracted from $99 million to $36 million, and it generated $81 million in free cash flow after a $29 million outflow last year. Total locations served increased by 34% year over year to 106,000.
Toast trades at a price-to-sales ratio of 3.4, which is a bargain for a high-growth stock with huge potential.
Fun coffee = big opportunity
Dutch Bros is a coffee shop chain headquartered in Oregon, but it's expanding across the U.S. While not substantively different than any other chain in terms of its offerings, it focuses on speed and a friendly atmosphere, and its largely drive-thru concept is resonating with coffee lovers in the 16 states where it operates.
What's exciting about this story is that Dutch Bros is still in its infancy. It had 831 stores as of the end of 2023, but that's a large enough sample to demonstrate that this is a viable concept that can be expanded. Management sees the opportunity to open as many as 4,000 stores in the coming years, and it's planning to open 165 this year. It recently brought in a new CEO with experience in the food and coffee industries to bring it to the next level, leveraging its popular name and solid execution to scale up and capitalize on its opportunity.
Revenue continues to grow at strong rates -- 31% in 2023 -- and net income switched from a $19 million loss in 2022 to a $10 million profit in 2023.
Dutch Bros stock trades at a price-to-sales ratio of just 2, even less than Amazon, and its stock price could explode this year.
The next big name in sneakers
It's possible that you haven't even heard of On Holding. The fairly small company based out of Switzerland is becoming known for its CloudTec sneakers, but aside from its popular footwear, it also has a line of premium athletic wear.
When I say popular, I mean that it's gaining a large and loyal fan base who will buy its products through inflation and other economic volatility. Management says it's gaining market share at "unprecedented rates," and it's planning to scale to new populations this year. Sales increased 47% year over year in 2023, and management is guiding for sales to increase 30% in 2024. Net income rose 38% over last year.
Because it is inspiring such strong brand loyalty and has a resilient target market, On Holding makes a high rate of full-price sales, driving strong margins. Gross margin was 60.4% in 2023's fourth quarter, and management expects to maintain a gross margin of at least 60% in 2024.
There's tremendous opportunity for On Holding as it captures market share and gets its name out more widely. Even in Switzerland, it has less than 50% brand awareness, and the company has only 9% in the U.S. It has incredible potential to convert shoppers into long-term customers as more affluent, resilient shoppers find out about its sneakers.
Trading at 7 times sales, On Holding is more expensive than Toast or Dutch Bros, but it offers powerful growth opportunities, and it could soar this year.
