Hypergrowth stocks can be fun and exciting. They could also be short-lived moths in the wind of Wall Street. The best growth investors have long investment horizons and look for companies that combine great growth with long-term sustainability.
On that note, let me introduce you to a few of my favorite high-octane growth stocks. Restaurant management software and language learning apps may not sound like exciting business ventures, but they are Toast (NYSE: TOST) And Duolingo (NASDAQ: DUOL) maybe you’ll change your mind about that.
Toast’s groundbreaking foodservice platform
It is not easy to run a restaurant, a small cafe chain or a few drive-through fast food restaurants. The business owner can get a point of sale system Blockmaintain inventory by Oracle‘s food and beverage segment, and a marketing campaign based on spreadsheets and hand-scribbled sticky notes.
Toast was born when the founders found it frustrating to make a quilt of separate restaurant software packages work together. The massive foodservice industry desperately needed a more user-friendly solution where any part of the system could reference data from other components. So the same cloud-based platform that maintains ingredient inventories also handles order designs and marketing campaigns.
In addition to the customer-friendly nature of this software package, Toast also treats the order taking and checkout hardware as a marketing tool. The hardware is sold below cost, giving companies in the notoriously low-margin restaurant business another reason to see what Toast can do for them.
Moreover, satisfied customers ensure that Toast gets a good reputation locally. Word of mouth is a powerful tool, and Toast explicitly aims to achieve this through heavy marketing efforts in specific geographic markets. Once the positive rumor mill is spinning, it’s time to move the service sales machine to the next town.
It’s no surprise that Toast’s business is skyrocketing. The lagging turnover has increased by 87% in two years. The company records a pre-tax loss from operations, resulting in minimal tax expense. At the same time, Toast’s free cash flow is positive and rising.
The stock isn’t even expensive. Toast’s stock trades at 3.7 times sales and looks like a bargain in the context of rising sales and rising cash flow. The time will also come for positive earnings numbers, but Toast is still in the early stages of the classic growth stock game.
I highly recommend buying some Toast shares while they are cheap. The $15 billion market cap you see today should increase over time.
Duolingo’s gamification approach to learning
Duolingo, the platform with the green owl mascot, has turned language learning into an addictive game. Every class feels like a level up, with achievements, streaks, and that endearing owl cheering you on. It’s not just about vocabulary and grammar; it’s about overcoming new challenges and earning virtual high-fives.
The company innovates the idea of ​​learning through rote repetition. Gaming this everyday experience, with a healthy dose of fun stories and friendly cartoon characters, makes the whole learning process fun and even addictive. With a daily learning streak that will likely end eight years in June, I am a walking illustration of Duolingo’s habit-forming nature.
And I’m far from the only Duolingo enthusiast out there. The company had 31.4 million daily active users in the first quarter, up from 20.3 million in last year’s report. The number of paying subscribers also increased by 54% to 7.4 million names. The lucrative share of paying subscribers is also increasing, from 8% to 8.6%.
I think this is just the beginning of a great long-term growth story. Duolingo is already testing its gamified learning model in math and music, presented in the same format as its language courses. The lessons learned from these experimental launches should help Duolingo expand into other repetitive learning opportunities over time, from world history to physical sciences and beyond.
The company is also not sitting on its green, feathered hands when it comes to learning opportunities. With the Duolingo Max ultra-premium subscription, you can practice Spanish and French with an artificial intelligence (AI) chatbot. It can also explain your mistakes and build on the lessons you can learn from a correct answer. I expect to see more AI-based learning tools from Duolingo over time, allowing the company to charge a premium price for additional useful services.
This stock is not cheap. Duolingo trades at 13 times revenue, 37 times free cash flow and 185 times adjusted earnings. These are nosebleed ratings reserved for the hottest market enthusiasts. But Duolingo deserves its premium stock prices.
Users, revenue, and revenue are soaring, and Duolingo is targeting a huge global learning market. I can’t wait to see where this crazy green owl will fly and how far Duolingo’s $7.6 billion market cap can expand.
Should You Invest $1,000 in Duolingo Now?
Before you buy shares in Duolingo, consider the following:
The Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Duolingo wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $579,803!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 13, 2024
Anders Bylund has positions in Duolingo and Toast. The Motley Fool holds and recommends positions in Block, Duolingo, Oracle, and Toast. The Motley Fool has a disclosure policy.
2 Hyper-Growth Tech Stocks to Buy in 2024 and Beyond was originally published by The Motley Fool
