Hypergrowth stocks can be fun and exciting. They can become short-lived moths exposed to Wall Street headwinds. The best growth investors maintain long investment horizons and look for companies that combine superior growth with long-term durability.
On that note, here are some of my favorite high-growth stocks. Restaurant management software and language learning apps may not sound like thrilling business ventures, but they are. toast (NYSE:TOST) and Duolingo (NASDAQ:Duor) You might change your mind about that.
Toast’s innovative foodservice platform
Running several restaurants, small cafe chains, and drive-thru fast food joints is not easy. A business owner can finally implement her POS system as follows. blockby inventory tracking oraclefood and beverage sector, and marketing campaigns based on spreadsheets and handwritten sticky notes.
Toast was born when its founders found it cumbersome to make separate restaurant software packages work together. The huge restaurant industry desperately needed a more user-friendly solution where every part of the system could reference data from other components. So the same cloud-based platform that tracks raw material inventory also handles order fulfillment and marketing campaign design.
In addition to the client-friendly nature of this software package, Toast treats its order-taking and checkout hardware like a marketing tool. The hardware is sold below cost, giving companies in the notoriously thin restaurant industry another reason to see what Toast can do.
Additionally, satisfied clients tend to give Toast a positive reputation locally. Word of mouth marketing is a powerful tool, and Toast clearly aims to achieve it through strong marketing drives in specific geographic markets. Once the positive rumor mill is up and running, move the service vending machine to the next city.
It’s no surprise that Toast’s business is booming. Tracking revenue increased by 87% in two years. The company has a pre-tax loss from operations, resulting in minimal tax expense. At the same time, Toast’s free cash flow is positive and increasing.
Stocks aren’t expensive either. Trading at 3.7 times sales, Toast stock looks like a bargain given its rapidly increasing sales and cash flow. There will come a time when the bottom line will be positive, but Toast is still in the early stages of the classic growth stock game.
I highly recommend buying Toast stock while it’s cheap. The $15 billion market cap we see today should grow over time.
Duolingo’s gamified approach to learning
Duolingo, the platform with its green owl mascot, has turned language learning into an addictive game. With each lesson, you’ll feel like you’re improving as you achieve grades and records and have an adorable owl cheering you on. It’s not just a matter of vocabulary and grammar. It’s about overcoming new challenges and earning virtual high fives.
The company is trying to reinvent the very concept of learning through memorization and repetition. By gamifying this mundane experience with plenty of fun stories and friendly cartoon characters, the entire learning process becomes fun and even addictive. I continue to learn every day, and he will probably have passed 8 years in June. I am illustrating the habit-forming nature of Duolingo.
And I’m not the only Duolingo believer. The company had 31.4 million daily active users in the first quarter, up from 20.3 million in the same period last year. The number of paid subscribers also increased by 54%, reaching 7.4 million. The profit portion of paid subscribers has also increased, rising from 8% to 8.6%.
I think this is just the beginning of a tremendous long-term growth story. Duolingo is already testing gamified learning models in math and music, delivered in the same format as language courses. The lessons learned from these experimental launches should help Duolingo expand over time into other iterative learning opportunities, from world history to natural sciences and beyond.
The company isn’t sitting idle on its green feathers when it comes to learning features either. With the Duolingo Max Ultra Premium subscription plan, you can practice Spanish and French using artificial intelligence (AI) chatbots. You can also explain your mistakes and expand on the lessons you learned from your correct answers. In the future, we expect Duolingo to offer more AI-based learning tools, allowing the company to charge premium prices for services that are particularly useful.
This stock isn’t cheap. Duolingo trades at 13 times sales, 37 times free cash flow, and 185 times adjusted earnings. These are nosebleed valuation numbers reserved for the hottest market darlings. But Duolingo deserves a premium stock price.
With user numbers, sales, and revenue skyrocketing, Duolingo is eyeing a huge global learning market. We can’t wait to see where this quirky green owl will fly and how far Duolingo’s $7.6 billion market cap will grow.
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Anders Bylund has positions at Duolingo and Toast. The Motley Fool has positions in and recommends Block, Duolingo, Oracle, and Toast. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
