I love growth stocks. To me, finding an up-and-coming growth stock is one of life's greatest pleasures. That's because it's these sorts of emerging companies that can supercharge a stock portfolio -- delivering outsized returns that change lives.
Let's take a closer look at two stocks I'm particularly keeping an eye on right now.
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1. Toast
First, there's Toast. (TOST 2.62%) Toast provides cloud-based restaurant technology platforms that you may have seen in one of your favorite gathering spots. The most visible Toast product is its point-of-sale devices that allow servers to place orders, track sales, and complete payments.
However, Toast supplies more than just the smart devices that replace the old pen-and-pad method for waitstaff. Toast integrates technology that can facilitate online orders, track what menu items are selling, and estimate the approximate wait time for a table.
As a result, restaurants are partnering with Toast to increase their efficiency and customer satisfaction. While Toast has made inroads, the restaurant industry is huge, meaning there is plenty of room for growth. The company estimates its total addressable market (TAM) to be more than $110 billion. Compare that the company's annual recurring revenue of $1.7 billion and you see the massive potential.
More to the point, Toast is showing that it is making progress in selling its technology. It recently landed a contract with fast-casual giant Dine Brands Global, which operates Applebee's and IHOP, among other chains, to deploy its platform across that company's locations. Moreover, as of its most recent quarter (for the three months ending March 31), Toast reported revenue of $1.3 billion, up 24% from a year earlier.
However, investors should remember that Toast -- and all emerging growth stocks -- carry some risk. If the company's revenue growth were to slow, Toast stock could slump. In other words, Toast isn't a stock for everyone. Yet for those looking for a growth stock for the long term, it's a stock to consider.
2. Reddit
While Reddit (RDDT 4.92%)is not a new company (it was founded in 2005), it is a relative newcomer to the stock market. Shares of the company debuted in March 2024. Since then, its stock has advanced by more than 200%, bringing its market cap -- as of this writing -- to $20 billion.
As far as tech stocks go, Reddit remains a minnow. But there are reasons to believe it has significant room to grow.
First, Reddit is rapidly growing its user base. As of its most recent quarter (the three months ending on March 31), Reddit reported around 108 million daily average users (DAUs). That's up 31% from a year earlier, helped along by a couple key drivers.
For example, there are some social media platforms -- like Meta Platforms' Facebook and Instagram -- that boast billions of DAUs. Reddit will need to scale into international markets to hit similar levels. Accordingly, the company is leveraging artificial intelligence (AI) translation tools to make Reddit posts available in any language. The company already piloted its program with 35 languages, with plans to expand the offering in coming years.
Turning to fundamentals, Reddit is already capitalizing on its existing user base by increasing its average revenue per user (ARPU). In its most recent quarter, global ARPU grew to $3.63, up 23% year over year; U.S. ARPU increased to $6.27, up 31% from a year ago. More broadly, Reddit's total revenue skyrocketed by 61% to $392 million, on the back of expanded advertising sales.
Looking ahead, analysts estimate (based on figures compiled by Yahoo! Finance) that Reddit should generate $1.9 billion of revenue in 2025 and $2.4 billion in 2026, up 42% and 28%, respectively.
As for risks, Reddit's high growth rate acts as a double-edged sword. If growth were to slow, the company's stock could experience a sharp pullback. Similarly, with so much of the company's revenue coming from advertising, an economic contraction could spell short-term pain for the stock, as many companies might cut their ad spending.
However, over the years to come, I believe Reddit is well-positioned to deliver significant growth, even with some bumps in the road along the way. That's why I see Reddit as a smart choice for investors looking for a long-term growth holding.
