The S&P 500 index is up 23% over the last year and rallied into the new year. The market’s rebound looks like a bullish signal for the markets and economy, especially coming off a down year for the markets in 2022.
Indeed, there are certain companies that are posting strong growth and could be timely picks at the start of 2024. Let’s find out why three Motley Fool contributors believe Toast (NYSE: TOST), Opendoor Technologies (NASDAQ: OPEN), and Dutch Bros (NYSE: BROS) could offer investors a once-in-a-decade buying opportunity.
Toast stock could be a homerun in the making
John Ballard (Toast): The restaurant industry is in the early stages of a shift toward cloud-based technology solutions. Toast is riding that trend. The company offers several tools, including kitchen display systems, mobile ordering tools, and payroll and payment processing that make running a restaurant much more streamlined.
Toast added 25,000 new locations to its platform over the last year, but it’s got a long way to go. There are an estimated 860,000 restaurants in the U.S. alone, and Toast is proving it can also adapt its platform to niche markets, such as hotels. Earlier last year, Toast signed a deal to provide its technology for select Marriott hotels in the U.S. and Canada.
The company just crossed the $1 billion quarterly revenue milestone, up 37% year over year in the third quarter. It’s not earning a profit yet, but with more revenue coming from recurring sources like subscriptions and payments, Toast has a lucrative future.
It’s for these reasons that the stock looks cheap. The shares trade at an attractive price-to-sales ratio of 2.55, which is well below the average fast-growing software or cloud stock. This could be a great time to start an investment before Wall Street realizes the incredible value here.
A real estate revival?
Jeremy Bowman (Opendoor Technologies): 2023 was a rough year for the real estate sector, as housing market activity continued to slow as mortgage rates crept even higher.
Among the losers in the real estate meltdown has been Opendoor Technologies, which is down 89% from its all-time high in 2021. Opendoor specializes in home flipping, meaning it buys houses, refurbishes them and sells them for a higher price.
The model works well in a low-interest rate environment with rising home prices and active buyers, but it’s gotten crushed in the housing collapse over the last two years.
The good news for investors, though, is that Opendoor has taken steps to reset its cost structure, and there are signs that the housing market is starting to turn as mortgage rates are coming down. Expected interest rate cuts from the Federal Reserve later this year should bring mortgage rates down further.
The company issued multiple rounds of layoffs, most recently cutting 22% of its workforce, or 560 jobs, last April, and it’s narrowed its losses significantly. In the third quarter, for example, revenue fell 71% to $980 million, but it narrowed its adjusted net loss from $328 million to $75 million. Opendoor has also scaled back its home-buying activity and inventory from its earlier peak, but it is starting to ramp it up again.
Opendoor’s rivals like Zillow and Redfin also exited the iBuying industry during the housing crash, which could make the market less competitive in the recovery. If interest rates fall as expected this year, we should see a gradual recovery in the housing market and a rebound in home prices. That scenario could easily lead to strong profits for Opendoor. If the company can deliver on the bottom line after a long drought, the stock is likely to surge.
An early-stage opportunity you don’t want to miss
Jennifer Saibil (Dutch Bros): The best buying opportunities often come with high risk. It may not be the right move for every investor at every stage of life, but buying early-stage stocks with tons of growth potential offers the best chance for gains.
Dutch Bros is fairly new on the investing scene, and it’s the opposite of the high-growth tech stocks that typically spark interest in the investing community. It operates a chain of coffee shops that are essentially the same as any other, but they come with their own culture and vibe, and they’ve become really popular with their clientele. A good product is essential for a growth company, and Dutch Bros offers that. It’s simple but compelling.
Because it’s so young, its runway is long and wide open. It operates fewer than 800 stores as of the end of the third quarter, and it envisions reaching 4,000 over the next eight or so years. That itself is a massive growth driver, and revenue growth has been robust despite inflation due to the number of store openings.
The flip side is that comparable-store sales (comps) growth hasn’t been so strong. Comparable-store sales growth is an important indication of how loyal customers are and how viable the concept is. They also contribute to higher profitability, since more customers per store reduces the impact of fixed costs. Comps were high prior to the inflationary environment, and they are accelerating again, but they’re still low. Management attributes at least part of that to what it calls its fortressing strategy, which is opening a blitz of stores in a given region to spread brand awareness and capture market share. While it accomplishes those overarching goals, it could lead to less comparable-store sales growth in the short term.
In the meantime, while overall revenue is growing, so is net income, up to $13.4 million in the 2023 third quarter from $1.6 million in the year-ago quarter. Company-operated shop contribution margin dipped last year, but it’s also rising again.
Dutch Bros has a clear path toward high growth, and sales should accelerate as inflation moderates. Dutch Bros stock is trading almost 16% below its first-day closing price, and now could be an excellent time to buy in at a price you might never see again.
Should you invest $1,000 in Toast right now?
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Jennifer Saibil has no position in any of the stocks mentioned. Jeremy Bowman has positions in Redfin. John Ballard has positions in Toast. The Motley Fool has positions in and recommends Opendoor Technologies, Redfin, Toast, and Zillow Group. The Motley Fool recommends Marriott International and recommends the following options: short February 2024 $8 calls on Redfin. The Motley Fool has a disclosure policy.
3 Incredible Growth Stocks That Offer a Once-in-a-Decade Buying Opportunity was originally published by The Motley Fool
Source: finance.yahoo.com