I'm a growth investor at heart. Value investing can build great fortunes, and a hefty chunk of my portfolio is devoted to stable long-term wealth builders -- diversification is important, after all. But it's so much fun to look for tomorrow's big winners today.
I have a few success stories under my belt, but they all took years to develop. My Netflix(NASDAQ: NFLX) and Alphabet(NASDAQ: GOOG)(NASDAQ: GOOGL) buys are up by more than 1,000% each, but I started them in 2011 and 2010, respectively.
So I'm always looking for the next Netflix or Alphabet. What stocks can I buy today to collect huge returns over the next decade or two?
My best ideas right now include media-streaming technology expert Roku(NASDAQ: ROKU) and restaurant management software maker Toast(NYSE: TOST). These growth stories are in their early chapters, and I expect them to continue winning for a very long time.
Here's why I see market-stomping returns in the long run from Toast and Roku.
Great growth stories with promising futures
The business models are very different, but Toast and Roku have a lot in common.
Both companies are staring down enormous markets in the long run. Toast's radically simplified restaurant management system has been installed in 127,000 locations so far, and that's just 14.5% of the American restaurant market.
Roku has reached 85.5 million media-streaming households, with annualized platform revenues (service fees and ad sales) of $3.6 billion. The Emarketer firm estimates the domestic TV advertising market to be worth more than $90 billion this year.
And both companies have a lot of international growth to explore if and when they run out of greenfield growth opportunities in the U.S.
So Toast and Roku are staring down massive long-term growth opportunities, and they are off to an impressive start. Roku's sales quadrupled over the last five years. Toast's quadrupled in three years. Both companies have seen solid cash profits in recent quarters, paid down their long-term debt balances to zero, and amassed billion-dollar cash reserves.
Different valuation levels
Investors have embraced Toast recently, sending the stock price 120% higher year to date. The stock isn't cheap, trading at 50 times forward earnings estimates and 4.9 times trailing sales -- but I think it's worth every penny of that premium price.
Roku, on the other hand, keeps doing everything right while the stock price is going down. After losing 21% of its value in 2024, Roku's shares are valued at just 2.5 times sales. Viewed in a different light, Roku's stock price stands 85% below its all-time highs.
How to invest in Toast and Roku today
I get it if you think Toast looks expensive at the moment, and Roku would be my first choice, too. But don't stay on Toast's sidelines too long. You don't want to look back at years of market-beating gains from 2030 or 2035, kicking yourself for missing this opportunity.
You can always set up your Toast and Roku positions in several transactions over time, perhaps buying in thirds or automating a dollar-cost averaging plan for the long haul. These approaches can smooth out market volatility and avoid getting stuck with a single buy at an uncomfortable starting price.
Whatever buying method you prefer, Roku and Toast deserve a closer look from every growth investor. I can't promise that they will match my proven Netflix and Alphabet returns, but the opportunity is right there. I think we're looking at tomorrow's business giants in their early years.
Roku is stealing market share from traditional TV networks and other online media channels. I'm finding Toast logos on my takeout receipts all over the place. Both companies have clearly defined, effective growth plans, and I see great long-term value in these stocks today.
Should you invest $1,000 in Roku right now?
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anders Bylund has positions in Alphabet, Netflix, Roku, and Toast. The Motley Fool has positions in and recommends Alphabet, Netflix, Roku, and Toast. The Motley Fool has a disclosure policy.
