With the tech-heavy Nasdaq Composite index on a bull run and in record territory, it looks like investors are optimistic about the corporate landscape these days. Many prominent businesses have seen their share prices soar in recent times amid the favorable backdrop.
There's one growth stock that might fly under the radar, though. Part of the reason is that most investors might not be familiar with the business. The other reason is that shares are currently 63% below their peak price.
That shouldn't discourage you. Here's why it might be a smart idea to buy this growth stock with $1,000 right now and hold through 2024 and beyond.
Becoming a mission-critical provider
Providing a full suite of cloud-based solutions to the restaurant industry, like point-of-sale hardware, payroll processing, omnichannel ordering capabilities, employee management, and supply price tracking, Toast (TOST 3.42%) is a company that investors should take a closer look at. The business was founded with the goal of making life easier for owners and operators with a single all-in-one software solution.
Toast's management team understands how complex and difficult it can be for a restaurant location to operate seamlessly. That's why it is constantly focused on introducing new products and features to better serve its customers. As restaurants use more of these tools over time, depending on Toast as an essential service provider, the company starts to develop an economic moat thanks to switching costs.
But while Toast can hold on to its current customers, its competitors could also benefit from the same thing. Rivals like Clover, Lightspeed, and Block's Square all likely have lock-in from their customer bases as well. This just means Toast must continue improving its services offerings to maintain and grow its market share over time. An impressive 20% of new customers came from referrals, demonstrating strong mindshare.
Staring at a huge opportunity
Speaking of the market, it's truly massive. Management says that there are 860,000 different restaurant locations in the U.S. Toast has meaningful share of this. After the business added 27,000 new customers in 2023, it now has about 12% of the overall domestic market as its users.
And there are 22 million total restaurant locations if we include other countries across the globe. Should the business be successful at repeating its success in the U.S. in international markets, there's even more growth potential.
Even in uncertain economic times, growth has been stellar. Revenue increased by 42% in 2023. Although that's a slowdown from the the past couple years, it's still a rapid pace.
Toast will benefit from the ongoing broader shift to more cloud-based solutions. It is estimated that $55 billion is spent annually in the U.S. by restaurants on technological services and tools. This just means there's a huge expansionary runway over the decades ahead, with a leading brand like Toast in a favorable position.
Buying the dip
There has been some bullish momentum for Toast in the past four months -- shares are up 32% as of March 22. But as I mentioned above, the stock is still significantly below its peak price set in November 2021, not long after the company's initial public offering.
Perhaps the market is warming up to this business and its prospects. Even so, shares trade below 3.4 times trailing sales. That's not a steep valuation to pay for a company that already benefits from competitive advantages and has sizable growth potential.
Investors shouldn't think hard about this one. Toast looks like a smart stock to buy on the dip with $1,000 right now. And shares are poised to do well over the long term.
