Stocks that are hitting new highs, especially on top of growing demand for their products, can signal a long-term winner. The following growth stocks pulled back along with the market sell-off this year before strong first-quarter earnings results sent them to new highs.
Here's why investors might want to consider adding these two stocks to their portfolios right now.
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1. Roblox
Investors are starting to catch on to the tremendous opportunity for Roblox (RBLX 0.52%). It's a free online platform where 98 million users come to play games and interact with others across a range of different user-created experiences. The stock has more than doubled over the past year and just hit a new 52-week high following another strong quarter.
Roblox is available on all gaming platforms, including console, mobile, and PC. It's popular with kids, but its fastest-growing age group are users older than 13 years. The ability to capture interest from older users is significantly expanding Roblox's growth potential.
Many of the experiences on the platform are free, but players can also spend money on virtual currency (Robux) to unlock other content. Investors are starting to see that Roblox has a sustainable growth story with many years of growth ahead. Over the last three years, revenue has nearly doubled and grew 29% year over year in the first quarter.
Roblox says its community of content creators is on track to earn more than $1 billion in compensation (developer exchange fees) this year. This is a great incentive to encourage more creators to make content for the platform. Like Netflix illustrated over the past decade, Roblox could benefit significantly from increasing the quantity of content available on the platform to appeal to a larger user base.
Roblox believes it can capture 10% of the annual money spent on video game content. Industry estimates vary depending on the source, but Roblox references Newzoo's $180 billion estimate for the video game industry in 2024.
Roblox's trailing-12-month revenue totaled $3.8 billion, and with revenue growing more than 20% year over year, it is certainly on course to reach its long-term target of $18 billion in annual revenue within the next decade. That would fuel handsome gains for shareholders.
Image source: Getty Images.
2. Toast
Restaurants are starting to adopt cloud-based solutions for managing their businesses. Strong demand for Toast's (TOST -1.23%) platform has sent the stock soaring over the past year, and it just hit another new high following another strong quarter of growth.
Toast added 6,000 net new locations in the first quarter, with revenue up 31% year over year to $1.7 billion. The company is starting to see profits rise as the business grows, which is fueling investor optimism and supporting a higher share price.
Toast has great growth potential since it is demonstrating it can adopt its platform to meet the needs of a wide range of restaurant types. Whether it's serving the needs of a large restaurant chain like Applebee's or signing a deal to provide digital solutions for Topgolf, Toast is gaining momentum across the industry.
Its intuitive and comprehensive platform is a key selling point. Toast provides lots of tools that make running a restaurant business a lot easier, including kitchen displays and handheld devices for staff. It also provides real-time analytics that helps restaurants learn ways to improve service and reduce costs. Toast says it is winning the majority of deals over its competitors, positioning the business for a record quarter of net new additions for Q2.
Toast has only captured 10% of the 1.4 million restaurant locations in its addressable market. It is clearly on track to capture a larger share of this market, and that means the stock could deliver multibagger returns to investors.
