Holding shares of growing companies is an effective way to invest and grow your savings over many years. And even with the markets sitting close to new highs right now, there are plenty of great stocks selling at discounted valuations that could deliver exceptional returns.
Three Motley Fool contributors provide reasons why Toast (TOST 0.43%), Roku (ROKU +2.49%), and Dutch Bros (BROS 5.87%) could potentially triple your investment in the next six years.
An undervalued high-growth software business
John Ballard (Toast): Toast is solving a big problem for the restaurant industry and generating tremendous revenue growth in the process. It provides a digital platform to help restaurants drive more orders and traffic and increase productivity for the staff. The stock trades at a relatively low valuation compared to most other growing software-as-a-service (SaaS) companies.
NYSE: TOST
Key Data Points
The industry operates on low margins, but as more customers order digitally, restaurants need an efficient tool to be able to serve more guests and grow their business, while efficiently managing operations to grow profits too. This is especially true for small businesses, which are driving most of Toast's growth. The company's revenue grew 42% in 2023 to reach $3.9 billion.
Toast serves an estimated 10% of all U.S. restaurants. That leaves a lot of room to expand. Management sees a tremendous opportunity to grow through word-of-mouth with local restaurants, expanding more with larger restaurant chains, and international expansion. Its platform is also easier to use than the competition, which gives Toast an upper hand in winning new customers.
The stock trades at a modest price-to-sales valuation for a high-growth software company. Most SaaS stocks trade around 10 times trailing revenue, but Toast trades at a 3.2 multiple of revenue. Assuming the company continues to grow revenue at a high rate over the next six years, the stock could triple in value just from the company's revenue growth alone.
A turnaround is afoot for this streaming leader
Jeremy Bowman (Roku): One stock that looks like a great prospect to triple by 2030 is Roku, the leading streaming distribution platform. Roku has had a rough few years since its pandemic-driven boom, and the stock is down by more than 80% since its peak in 2021. However, the company remains the leading streaming distribution platform, fending off titans like Amazon and Alphabet along the way.
Roku shares are in the doghouse right now after the company gave tepid guidance in its most recent earnings report and was vague about profitability goals, but there are a number of trends that should work in the company's favor.
NASDAQ: ROKU
Key Data Points
First, streaming will continue to take share from traditional pay TV. Roku has delivered steady growth in its user base and viewing time, with active accounts up 14% in its fourth quarter and streaming hours up 21% to 29.1 billion, and that should continue.
Roku should also benefit from the proliferation and growth of advertising tiers across streaming services like Netflix, Disney, and Amazon, which should provide a tailwind for the company, as Roku typically takes 30% of advertising revenue from its streaming partners.
The company is struggling at the moment with a downturn in ad spend in the media and entertainment (M&E) vertical as legacy media companies cut costs to drive streaming profits, but that will eventually normalize.
Roku has also cut its own costs after several rounds of layoffs, clearing a path to profitability as advertising demand rebounds. Even if the stock tripled by 2030, it would still be significantly down from its pandemic-era peak.
In other words, there's a high ceiling for Roku's growth, and the situation looks right for it to capitalize on that opportunity.
The newest coffee craze is more than a fad
Jennifer Saibil (Dutch Bros): Dutch Bros is a small but growing coffee chain based out of Oregon with stores mostly located in the Western U.S. However, it's opening stores at a fast pace in more regions, and its concept is resonating with customers across the 16 states where it operates right now.
It opened 159 stores in 2023, surpassing its goal of 150, for a total of 831. It plans to open up 165 this year, and it sees the opportunity for at least 4,000 stores by around 2030. Dutch Bros is generating high revenue increases as it keeps expanding, and these new stores provide years of new growth opportunities.
NYSE: BROS
Key Data Points
Comparable sales (comps) growth is the other side of increasing sales, and a viable company needs to have comparable sales growth to last and keep growing. Dutch Bros' comps growth was flagging for a while, and it raised prices to counteract some of the impact of inflation. Management says its fortressing strategy, which involves opening a blitz of new stores in one area to amplify its brand while introducing itself to new customers, also leads to lower comps in the near term. This is something to watch, but it has been accelerating again, reaching a 5% increase year over year in the 2023 fourth quarter. Total sales increased 26% year over year in the quarter.
Dutch Bros isn't consistently profitable yet, but it's getting closer. It reported a full-year profit of $10 million after a loss last year, but a $3.8 million loss for the fourth quarter. The company's founder-CEO recently handed over the reins to a food industry veteran to take the company to the next level. Running a several-hundred-shop chain is different than running a several-thousand-shop chain, and companies that experience fast growth need a different set of operations to grow and become profitable at scale. This is a great move to expand efficiently and generate shareholder value.
Dutch Bros stock is flat year to date. Investors are likely waiting for the next report to make their next move. Whatever happens in the short term, Dutch Bros is poised to grow and reward shareholders over the next few years and longer.
