In January 2024, analysts from the financial firm Baird called Toast (TOAST 3.35%) as one of its top financial technology stocks for the coming year. Team selection has been proven. Toast shares climbed 100% in 2024, easily surpassing the S&P 500 index
Toast was not the only stock that doubled in value in 2024. Shares of Revolve (RVLV 0.57%) and On Holding (ONON 2.26%) it also doubled last year, climbing 102% and 103%, respectively.
In reality, there are quite a few stocks that will double or more in 2024. But I like to group Toast, Revolve, and On together here because all three are lesser-known companies that have posted big gains. Here’s why the trio is up, and which one I believe is the best long-term stock to buy.
1. Toast
When interest rates were at zero, investors cared little about profitability since it was essentially free to lend money. But as interest rates have risen in recent years, investors have suddenly become very concerned about a company’s bottom line. And this was a problem for the restaurant technology company Toast, considering that it had a net loss of $275 million and $246 million in 2022 and 2023, respectively. But things improved dramatically in 2024, leading to a more optimistic investor community.
Through the first three quarters of 2024, Toast only recorded a net loss of $13 million compared to a net loss of $231 million in the same period of 2023. And the reason for the dramatic turnaround is simply: the revenues of the company increased rapidly, but management kept its operating expenses under control.
In reality, there are many operating expenses, and Toast does not treat them all equally. On the contrary, its spending on sales and marketing has continued to increase – it is in 14% so far in 2024. But its general and administrative (corporate) expenses have fallen 17%. In other words, the company is still willing to spend on growth, but is cutting corporate costs where possible. It is a solid approach to improve profits.
Third quarter revenue for Toast increased 26%, which is a solid growth rate. And now it turns the corner even on profitability. This combination is why the stock doubled in 2024.
2. Revolt
Trading at about 1 times sales, Revolve’s stock started 2024 at about its cheapest valuation ever. The digital fashion company used to be popular with Millennial and Gen Z shoppers, but its stock wasn’t popular with investors because of its stalled growth. But the stock more than doubled in 2024 as its top line returned higher.
To be clear, Revolve is a great deal. It is not necessarily looking for mass appeal – its average order value is $303 in the third quarter of 2024, which is a bit expensive for widespread adoption. That said, its active customer base of 2.6 million is nothing to sneeze at and is still growing, climbing another 5% in the most recent quarter.
Also, going after more than the height of the clothing market, Revolve enjoys respectable profitability. The company has reported positive net income in every quarter since going public in 2019. And the company is debt-free with more than $250 million in cash.
Indeed, the problem for investors with Revolve was its lackluster growth. But in Q3, the company’s revenue jumped 10%, and management said that the fourth quarter was off to a better start than Q3. Considering that it is financially strong already, the stock is coming now that its growth rate has accelerated.
3. Hon
When some prominent athletic footwear brands decided to more strongly embrace direct-to-consumer channels during the global pandemic, shelf space at shoe retailers was open for a company like On to land and take share of market Considering that the net sales of On have increased by 69% and 47% in 2022 and 2023, respectively, it is safe to say that it is really taking a market share.
Through the first three quarters of 2024, the net sales of On have another 27% from the comparable period of 2023. To be clear, about a third of the company’s sales are directed to the consumer. That said, as a younger shoe brand, it doesn’t quite have the same name recognition as more established brands. But it’s growing rapidly as its shoes get in front of more and more consumers.
In short, On’s net sales have nearly doubled in just the last two years. And with this rapid top-line growth, management was able to charge full price for its shoes, increasing its gross margin to an all-time high of over 60%. And it also sports a quality operating margin that is already more than 9%.
ONON Revenue (TTM) data from YCharts
These are fantastic financials for On, and investors are understandably optimistic. Also, while the On has become bigger, the space of sports shoes is huge, and there is still a lot of room for further market share gains from there.
Here’s my pick for 2025 (and beyond)
I think Revolve is a solid business, but I think it’s going after a pretty narrow slice of the market. For me, the long-term upside is unclear. And although growth has resumed, a 10% jump in revenue is still quite modest, which also suggests that growth is still tense. This eliminates the Revolve stock as my choice here.
It clearly has growth and its finances are great. However, consumer tastes in shoes can change unpredictably. In other words, it can be difficult to establish a durable competitive advantage. And for this reason, I think it’s important to buy shoe stocks at reasonable valuations.
At 15 times of sale, In stock does not trade at a reasonable valuation. It can also work for investors. But there doesn’t seem to be much margin of safety here, which is why I didn’t choose In stock today.
That leaves Toast stock as my pick for 2025. But I have the best reason to be optimistic about its growth potential in the coming year. According to management, as its market saturation increases, it becomes easier to win new business. In other words, as more restaurants start using their technology, word of mouth grows.
Toast has reached the tipping point that management is looking for in many markets around the US right now. Therefore, I hope that the company will sustain strong growth in the coming year and beyond. And if the profits increase with more efficiencies in the business, then the stock could also have much more.