3 Growth Stocks That Could Soar Over the Next Decade

Investors can multiply their money by owning shares of well-chosen growth stocks, and three fool.com contributors are here to show you three incredible opportunities.

Here’s why Toast (NYSE: TOST), Sweetgreen (NYSE: SG)and On Holding (NYSE: ONON) they could be monster winners.

Restaurants need Toast software

John Ballard (Toast): The restaurant industry has become more competitive than ever. Customers can conveniently order takeout with their phones, forcing restaurants to adapt to a rapidly changing competitive landscape. This is a huge opportunity for Toast software, which helps restaurants manage every aspect of their business efficiently.

With just $4.4 billion in trailing revenue, Toast is in the early stages of capturing an addressable market of over $100 billion. The platform helps restaurants manage orders, marketing, staff, supply chain and other operations. This all-in-one solution is attracting more restaurants to sign up, with the company reporting a 29% year-over-year increase in the number of locations using the platform in the second quarter.

Toast’s subscription revenue is growing with this growth. The stock trades at a premium price-to-sales (P/S) valuation compared to its peers in the restaurant software market. But this seems justified given the customer success stories with the product and its intuitive design, which makes it easy to train restaurant staff to use it. This bodes well for more robust growth.

Toast is gaining traction in small restaurants, which shows its market potential in the restaurant industry. While the stock’s P/S ratio of 3 might be expensive compared to its competitors, it doesn’t seem that expensive in the context of the entire software industry, where companies in other markets that are growing as fast as Toast can trade as high as 10 . or sales.

For these reasons, the stock could provide shareholders with wealth-creating returns over the next 10 years.

A story about a restaurant

Jeremy Bowman (Sweetgreen): One growth stock I keep coming back to in the consumer space is Sweetgreen, the fast-casual restaurant chain.

Sweetgreen got off to a slow start on the stock market. It went public at the worst possible time, in November 2021, just as the pandemic-driven stock market boom was peaking. As a result, the stock fell after its debut, but has rebounded in the past year for good reason. It now looks like a good candidate to grow over the next decade.

Sweetgreen is a leader in an emerging restaurant category, the fast-casual salad chain. People are hungry for easy and healthy takeout options, and Sweetgreen delivers on that count. Its restaurants are also popular. Its average unit volume of $2.9 million rival Chipotleand comparable sales rose 9% in the most recent quarter, showing that customers are coming for more.

The story continues

Sweetgreen also has plenty of potential for growth, as the company ended its second quarter with only about 225 locations.

The company doesn’t have a target for how many restaurants to open, but more established chains have thousands of restaurants in the U.S. For example, Chipotle is approaching 4,000 locations and expects to open at least 7,000. Given the uniqueness of its salad concept, Sweetgreen has a good opportunity to expand and could grow its footprint 10x or more.

Sweetgreen also has a technological edge, thanks to a robotic assistant it calls Infinite Kitchen. This speeds up its production, helping to increase average checks and save costs, increasing margins. The company plans to roll out Infinite Kitchen in more locations.

Right now it looks like a good opportunity to buy Sweetgreen as it has pulled back from its recent peak, down about 20%. At a market cap of just $3.4 billion, the stock could go much higher if it continues to execute.

Premium footwear for the serious athlete

Jennifer Saibil (pending): Based in Switzerland, On burst onto the athletic apparel scene with a unique shoe design, capturing premium footwear market share. Loyal fans spend big bucks to purchase their CloudTec sneakers from On, and inflation doesn’t stop this wealthy crowd.

At the same time as NIKE reports sales declines, On demonstrates robust growth. Sales rose 28% year-over-year in Q2, split almost equally between direct-to-consumer and wholesale channels. On is still developing its global presence and is only at the beginning of its growth. Wherever it already has a household name, it has become the footwear of choice for a growing number of luxury customers, meaning it has a long track to grow as it builds more fans.

On has a large, global contingent of athlete ambassadors because it targets the serious athlete. However, it is moving towards widening its reach and capturing more of the mass market. He recently signed a deal with Zendaya, who is not even an athlete but a “fashion icon”, to appeal to the luxury consumer.

Also, On is already profitable, which is not a given for a company at its stage. It has industry-leading gross margins because it charges premium prices and its resilient shopping base is less affected by inflation. It reached 59.9% in Q2, up from 59.5% last year, and net income grew by over 800%.

In stock is not cheap. It’s up 69% this year as the market recognizes its value and trades at a 1-year forward P/E ratio of 40. That’s a premium valuation for a premium stock, but it doesn’t seem unreasonable for a stock with On’s . opportunities. On has incredible potential as it slowly expands worldwide and becomes the new label that shoppers want to wear. Expect On stock to rise over the next decade.

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Jennifer Saibil has no position in any of the shares mentioned. Jeremy Bowman has positions in Chipotle Mexican Grill and Nike. John Ballard has positions in Toast. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Nike and Toast. The Motley Fool recommends On Holding and Sweetgreen and recommends the following options: short September 2024 $52 put on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

3 Growth Stocks That Could Soar Over the Next Decade was originally published by The Motley Fool