Back in January 2024, the financial experts at Baird pinpointed Toast (TOST 3.35%) as one of their standout fintech stocks for the year. Their foresight paid off handsomely, with Toast’s shares surging by a whopping 100% throughout 2024, easily overtaking the performance of the S&P 500 index.
Interestingly, Toast wasn’t alone in its climb. Revolve (RVLV 0.57%) and On Holding (ONON 2.26%) also saw their stocks double, with gains of 102% and 103% respectively over the same period.
But what makes Toast, Revolve, and On particularly intriguing is that these aren’t household names, yet they managed to deliver impressive returns. Let’s delve into why these stocks performed so well and determine which one stands out as a solid long-term investment.
### 1. Toast
When interest rates hovered near zero, profitability wasn’t a major concern for investors because borrowing was essentially free. However, as rates climbed in recent years, the focus shifted toward the bottom line, which posed challenges for Toast, a company that recorded net losses of $275 million in 2022 and $246 million in 2023. Fortunately, 2024 brought a dramatic turnaround for the restaurant tech company, boosting investor confidence.
During the first nine months of 2024, Toast narrowed its net loss to just $13 million, compared to a $231 million loss in the same timeframe in 2023. The reason? The company’s revenue surged while management kept a tight rein on operating expenses.
Toast adopted an intelligent expense strategy, increasing spending on sales and marketing by 14% in 2024, but cutting back on general administrative costs by 17%. This approach allowed the company to continue investing in growth while reducing corporate overhead. It’s a solid strategy for driving profits.
Toast’s third-quarter revenue grew by 26%, a healthy growth rate, and it managed to turn the profitability corner as well, contributing to the stock’s impressive gains in 2024.
### 2. Revolve
As 2024 unfolded, Revolve was trading at a valuation of roughly 1 times sales—a record low. Although this digital-first fashion brand is beloved by Millennials and Gen Z shoppers, its decelerating growth made it less appealing to investors. However, the stock made a resounding comeback, doubling in value as its revenue picked up pace again.
Revolve has carved a niche for itself, focusing on higher-end customers, with an average order value of $303 in Q3 2024. While this premium pricing limits mass appeal, Revolve’s 2.6 million active customers signify a growing base, having increased by 5% in the last quarter alone.
Targeting the high-end market has allowed Revolve to maintain respectable profitability, achieving positive net income each quarter since going public in 2019. With no debt and over $250 million in cash, Revolve’s financials are robust.
The main issue for investors had been Revolve’s anemic growth, but with a 10% revenue jump in Q3 and a promising start to Q4, the stock is gaining traction as its growth accelerates.
### 3. On
When major athletic footwear brands pivoted to direct-to-consumer channels during the pandemic, On seized the opportunity to capture retail shelf space and market share. The company’s net sales soared by 69% in 2022 and 47% in 2023, indicating its expansion into the market.
Through the first nine months of 2024, On’s net sales climbed another 27% compared to the same period in 2023. While about a third of its sales are direct to consumers, On’s brand isn’t yet as recognizable as established competitors. Nevertheless, it’s rapidly gaining visibility as more consumers are exposed to its products.
In essence, On has nearly doubled its net sales over the past two years. With burgeoning top-line growth, the company has maintained full price for its shoes, boosting its gross margin to a record high above 60%, alongside a healthy operating margin exceeding 9%.
These positive financials have left investors optimistic. Even as On grows, the athletic footwear market remains immense, offering ample opportunities for further market share expansion.
### My Choice for 2025 (and Beyond)
While Revolve is a commendable business, its focus is relatively narrow, leaving long-term potential somewhat uncertain. Even with revived growth, a 10% revenue increase is somewhat restrained, dissuading me from picking Revolve as the best buy.
On is showcasing impressive growth and commendable financial health. Yet, the unpredictability of consumer shoe preferences makes it difficult to secure a long-lasting competitive edge. Therefore, prudent valuation is critical when investing in shoe stocks.
Currently, On trades at a hefty 15 times sales, lacking a margin of safety, which is why it doesn’t make my list of recommendations today.
This leaves Toast as my preferred pick for 2025. One of the most exciting prospects for Toast is the ease of winning new business as it saturates more markets. As more restaurants adopt its technology, the growth becomes self-sustaining through word of mouth.
Toast is approaching a pivotal threshold across U.S. markets, suggesting strong growth potential in the coming years. Should profitability surge alongside operational efficiencies, Toast’s stock might offer significant additional upside.
