As the bull market of 2024 gathers steam, investors are on the lookout for companies that can deliver robust growth or sustainable returns -- and preferably both. In this environment, both Lyft (LYFT +0.41%) and Toast (TOST +1.21%) look like solid buys.
While Lyft aims to revolutionize transportation with ride-sharing innovations, Toast is disrupting the restaurant management sector with its comprehensive software solutions. Read on to see the financial metrics, growth prospects, and potential risks of both companies. Whether you prefer the ride-sharing leader or the restaurant management innovator in the end, you'll walk away with a deeper understanding of both companies. And then you can decide which stock might be better for capitalizing on this bull market.
NYSE: TOST
Key Data Points
Hungry for business growth? Try some Toast!
Anders Bylund (Toast): Restaurants need a robust payment processing solution. There are many options, including Toast.
They could also use a workforce management system tailor-made for table service and deliveries. Toast can help again.
And wouldn't it be cool if your restaurant management software could analyze your sales patterns and available ingredients to come up with menu adjustments and an effective local marketing plan? Yep, Toast does that as well.
I could go on, but my point is simple. The Toast platform offers a ton of restaurant management tools in a single package. The whole shebang was designed to work together, simplifying the integration of data from one part of the system to another.
On top of that manager-friendly setup, Toast goes hard for the mom-and-pop shops with low service prices, free trials, and payment systems priced below cost.
I find it hard to invest in restaurant stocks, but I do own a few shares of this sector-adjacent helper. If Toast does its job right, its clients will run their daily business with less friction and higher profits.
Your mileage may vary since Toast likes to focus its expansion efforts on a few hyper-specific markets at a time, kickstarting network effects before moving on to the next target city, but Toast terminals are popping up often here in Tampa Bay. And it's more than an anecdote. Toast's second-quarter sales rose 29% year over year while operating cash flows more than doubled from $50 million to $124 million.
The stock isn't even expensive today. Toast shares are changing hands at the modest valuation of 3.6 times sales, far below the price-to-sales ratios of slower-growing cloud service peers like Squarespace and Rubrik.
I understand that the ditches of Wall Street are littered with the ghosts of hungry start-ups that fell short of their long-term business plans. But Toast is already profitable and serves a target market of epic proportions, offering a unique combination of services in an easy-to-use package. In other words, this stock looks ready to run for years, building shareholder value along the way.
Toast is one of my favorite buy ideas in this bull market, and I don't even have a serious runner-up suggestion in the restaurant sector.
NASDAQ: LYFT
Key Data Points
The turnaround has begun
Jeremy Bowman (Lyft): Lyft isn't going to win any converts with a look at its stock chart. Shares are down more than 80% from its $72 IPO price in 2019, but the business now looks stronger than ever before with a new management team, a generally accepted accounting principles (GAAP) profit, and a detente with rival Uber that has benefited both companies.
Lyft has cut back on incentives and improved customer satisfaction through service improvements and new features such as women+, which allows female riders and drivers to match with other women. The company is also tapping into valuable new revenue streams such as advertising through Lyft Media.
In the second quarter, Lyft reported a 17% increase in gross bookings to $4 billion and revenue was up 41% to $1.4 billion.
Lyft also reported its first-ever quarter of GAAP profitability with $5 million in net income in the second quarter, and the company expects solid growth for the rest of 2024, calling for mid-teens rides growth and a slightly better performance in gross bookings.
In June, it announced 2027 financial targets, which included compound annual growth in gross bookings of 15% and an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of 4% by 2027, up from about 2% currently.
If the company can achieve those goals, it will have roughly $1 billion in adjusted EBITDA by 2027, meaning the stock looks cheap at its current market cap of just $5 billion. Falling interest rates should also help boost consumer spending, but the business has significantly improved from where it was after the pandemic, and the stock price should eventually reflect that.
