Growth stocks can help you multiply your savings over many years. Relatively small companies that are in the early stages of capturing their addressable market can be some of the most rewarding investments you ever make.
Some promising stocks are trading off their highs and could be timely buys before a rebound. Here's why three Fool.com contributors believe Cava Holding (CAVA +1.88%), On Holding (ONON 2.46%), and Toast (TOST 2.09%) offer attractive return prospects.
A fast-casual growth star
Jeremy Bowman (Cava Group): Cava has been publicly traded for less than two years, but the restaurant stock has already made waves in the stock market, delivering multi-bagger returns.
However, the Mediterranean fast-casual chain pulled back sharply since its peak last November as concerns about its valuation and, more recently, macro concerns around tariffs and other issues pushed the stock lower. As of March 5, Cava was trading down 43% from its peak.
NYSE: CAVA
Key Data Points
Despite the sell-off, the company's results have continued to impress. In the fourth quarter, same-store sales jumped 21.2%, a clear sign that the young restaurant chain is finding new customers and getting more frequent visitors, and overall revenue rose 28.3%.
It's also delivered strong results on the bottom line. For the full year, its restaurant-level profit margin was 25%, similar to Chipotle, the pioneer in the fast-casual industry. Its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) jumped from $73.8 million to $126.2 million.
Cava also has a long growth runway in front of it. The company finished 2024 with 367 restaurants, and it aims to have 1,000 by 2032, nearly tripling its store count. Over the long term, it could be several times that size. Chipotle, in comparison, now has more than 3,000, and is planning at least 7,000 over the long term.
Cava is still expensive by traditional metrics, but its valuation is much more reasonable than it was a few months ago. It's continued to deliver blistering growth despite the recent pullback. If it keeps up its momentum, this sell-off will have been a golden buying opportunity.
Higher growth, lower price
Jennifer Saibil (On Holding): On is a fresh, young activewear brand that's become the next big thing in the industry. Its premium, high-priced products are attracting a huge following, and On has continued to report strong growth and increasing profits despite a pressured environment that's sinking some of its competitors.
NYSE: ONON
Key Data Points
The fourth quarter was nearly flawless. Sales increased 41% year over year (currency neutral), driven by a 49% increase in direct-to-consumer sales. On has a broad omnichannel program with wholesale and direct-to-consumer channels, as well as a robust digital network and 50 physical stores. The stores serve to reinforce the company's brand, which it's working to amplify.
On is still building its brand presence, but in the regions where it's becoming recognized, it has developed a loyal fan base. Customers, who skew toward affluent to be able to pay its high prices, have continued to patronize it despite inflation. But On is also making a play for capturing market share in the general population, and it has a deal with celebrity Zendaya as a brand ambassador to bring its name into the public consciousness.
Profitability is also improving at a fast pace. On has the highest gross margin in the industry, and it expanded from 60.4% to 62.1% year over year in Q4. Net income rose 436%, up from a loss last year.
Despite the phenomenal performance and post-earnings jump, On stock is down 18% from its highs. The market is dealing with volatility due to the tariff situation, and foreign companies might be feeling it even more.
That creates a great opportunity for investors who've been waiting. At this writing, On stock trades at the reasonable valuation of 33 times forward, 1-year earnings. On has a long growth runway as it gets its name out all over the world, and today, it's trading at attractive levels.
Restaurants can't function without Toast
John Ballard (Toast): Restaurants are adopting cloud-based technology solutions to improve efficiency, and Toast is best positioned to benefit. The stock rocketed higher last year, but recently pulled back 20% off its 52-week high.
NYSE: TOST
Key Data Points
Toast makes it easy to take orders, manage payments, and streamline operations. The platform was built by people who have experience working in the restaurant industry and understand the challenges that restaurant owners face in day-to-day operations. This may give the company an advantage over competitors.
The proof is in the numbers. Revenue based on the annualized recurring run-rate grew 34% year over year in Q4. Toast has grown to serve 134,000 locations, but that still leaves a tremendous opportunity, as there are an estimated 875,000 restaurants in the U.S. alone.
What's more, Toast is not dependent on growing by adding new locations. It continues to add new features to the platform that can grow revenue from existing customers. By expanding its capabilities, Toast can tailor its platform to serve specific needs of different service models, including hotels, drive-thru, catering, and more.
Toast hasn't even begun to tap into the global restaurant industry, where there are an estimated 15 million locations (excluding China). This growth stock has the makings of a monster long-term winner.
