In January 2024, analysts at the financial firm Baird identified Toast (TOST 3.35%) as one of the premier financial technology stocks to watch for the upcoming year. Their forecast proved to be quite accurate, as shares of Toast soared by an impressive 100% throughout 2024, significantly outperforming the broader S&P 500 index.
Toast was not alone in its remarkable performance; shares of Revolve (RVLV 0.57%) and On Holding (ONON 2.26%) also experienced substantial gains, doubling their values with increases of 102% and 103%, respectively, over the same period.
There are several stocks that saw their values double and more in 2024. However, I find it particularly interesting to group Toast, Revolve, and On together, as they are all relatively lesser-known companies achieving significant growth. In this analysis, I will explore the factors driving their success and highlight which of these stocks I believe presents the best long-term investment opportunity.
Exploring the Growth Potential of Toast
During a period when interest rates were at an all-time low, investors were less focused on profitability, as borrowing money was virtually cost-free. However, as interest rates have climbed in recent years, investor sentiment has shifted, leading to heightened scrutiny over a company’s financial health. This shift posed challenges for Toast, a restaurant technology company that reported net losses of $275 million and $246 million in 2022 and 2023, respectively. Fortunately, the company has made significant strides in 2024, resulting in a more optimistic outlook from investors.
In the first three quarters of 2024, Toast reported a markedly reduced net loss of just $13 million, especially when compared to the staggering $231 million loss reported in the same period of 2023. The turnaround can be attributed to a rapid increase in the company’s revenue, coupled with disciplined management of operating expenses, which has bolstered investor confidence.
Toast has adopted a nuanced approach to managing its operating expenses. While the company’s spending on sales and marketing has risen by 14% so far in 2024, its general and administrative expenses have been cut by 17%. This strategy indicates that Toast is committed to investing in growth while simultaneously reducing corporate overhead, a balance that is crucial for enhancing profitability.
In the third quarter of 2024, Toast’s revenue surged by 26%, reflecting robust growth. As the company now approaches profitability, this combination of increasing revenue and tightening expenses has contributed to the stock’s remarkable doubling in value during 2024.
Revolve: A Fashion Retailer on the Rise
At the beginning of 2024, Revolve was trading at approximately one times its sales, marking one of its lowest valuations ever. This digital-first fashion retailer has cultivated a strong following among Millennial and Gen Z consumers, yet its stock was underperforming due to stagnated growth. However, in 2024, Revolve’s revenue began to climb once again, resulting in a more than doubling of its stock price.
Revolve operates as a niche business, focusing on a specific segment of the fashion market rather than seeking mass-market appeal. As of the third quarter of 2024, the brand’s average order value stood at $303, indicating its positioning at the higher end of the market. Despite this, Revolve’s customer base continues to grow, reaching 2.6 million active customers, reflecting a 5% increase in the latest quarter.
By targeting the premium apparel market, Revolve has managed to achieve solid profitability, consistently reporting positive net income since its public debut in 2019. Additionally, the company boasts a debt-free status and maintains over $250 million in cash reserves, further strengthening its financial position.
The primary concern for investors had been Revolve’s sluggish growth trajectory. However, the company’s revenue saw a significant 10% increase in Q3, and management indicated that the fourth quarter was showing even better performance. With a robust financial foundation now bolstered by accelerating growth, Revolve’s stock is positioned for further appreciation.
On Holding: Capturing Market Share in Athletic Footwear
As several leading athletic footwear brands shifted to direct-to-consumer sales during the global pandemic, opportunities arose for companies like On to capture significant market share. On has experienced impressive growth, with net sales increasing by 69% and 47% in 2022 and 2023, respectively, clearly indicating a successful strategy to gain market presence.
In the first three quarters of 2024, On continued to impress, with net sales rising an additional 27% compared to the same period in 2023. Notably, approximately one-third of On’s sales are generated through direct-to-consumer channels. While On may not yet rival the recognition of more established brands, its rapid expansion is making its products more accessible to consumers.
To summarize, On’s net sales have nearly doubled over the past two years, and this swift growth has enabled the company to maintain full pricing on its shoes, resulting in an impressive gross margin exceeding 60%. Additionally, On boasts a strong operating margin of over 9%, showcasing its operational efficiency.
ONON Revenue (TTM) data by YCharts
These robust financial metrics have fostered a positive sentiment among investors. Furthermore, as On continues to grow, the athletic footwear market remains vast, offering ample opportunities for the company to expand its market share even further.
My Top Stock Pick for 2025 and Beyond
While I view Revolve as a solid business, I believe its focus is on a somewhat narrow segment of the market, which leaves its long-term upside somewhat uncertain. Despite recent growth, a 10% revenue increase still appears modest, indicating potential challenges ahead. This leads me to exclude Revolve stock as my preferred choice for investment.
On Holding certainly exhibits strong growth potential along with impressive financials. However, the athletic footwear market can be unpredictable, and consumer preferences may shift rapidly. Establishing a sustainable competitive advantage in such a volatile environment can be challenging. Consequently, I believe it is crucial to acquire shoe stocks at reasonable valuations.
Currently, On stock is trading at a valuation of 15 times sales, which I do not consider reasonable at this moment. While there is potential for future gains, the lack of a significant margin of safety leads me to refrain from recommending On stock right now.
Ultimately, I am selecting Toast stock as my top pick for 2025. Importantly, Toast management has indicated that as market saturation increases, attracting new clients becomes easier through word-of-mouth. This suggests that as more restaurants adopt its technology, growth could accelerate.
Toast is currently at a pivotal point, as management identifies key tipping points in various U.S. markets. For these reasons, I anticipate the company will sustain robust growth in the coming year and beyond. With further operational efficiencies driving profitability, the stock could experience substantial upside potential as well.
