The new bull market has given many people a renewed interest in investing. While fast-rising share prices may have you nervous about buying in at the wrong time, you can find great businesses in any market environment, especially if you invest with a long-term mindset.
If you're on the hunt for compelling businesses that look like attractive investments right now, here are two top stocks to consider for your portfolio.
1. Duolingo
Duolingo (NASDAQ: DUOL) has capitalized on the size of the language learning market by offering dozens of courses through an extensive platform to millions of users around the world. The company focuses on helping language learners with personalized lessons and interactive exercises, which they can complete anywhere and at their own pace.
In that process, Duolingo leverages artificial intelligence , machine learning , and data analytics to track each individual's learning journey and to tweak the lessons to ensure they receive the content that is right for them. The company operates on a freemium model, which means anyone can access the learning content on Duolingo for free, but additional features and perks require a subscription.
Based on this model, the company generates revenue from advertising, subscription fees, and in-app purchases. It also makes money from its Duolingo English test, which has been adopted by thousands of higher education programs across the nation, including Yale, Columbia, Duke, and Stanford, as proof of English proficiency.
Moreover, learners tend to stick with the app for months or even years. They may use the free experience for a long time before becoming paying users. This flexible model allows Duolingo to capture all types of learners across various budgets and learning goals for a significant total addressable market (TAM). Management estimates its TAM is in the ballpark of 2 billion people.
In the first quarter, Duolingo reported total bookings of $197.5 million, up 41% year over year, while subscription bookings rose 47% to $161.5 million. It also had 7.4 million paid subscribers at the end of the quarter, up 54% year over year. Its overall daily active users also jumped 54% to reach 31.4 million.
Duolingo reported net income of $27.0 million on total revenue of $167.6 million. That bottom-line figure was a notable improvement from its $2.6 million loss a year ago, while revenue was up 45%. Importantly, the company is also cash-flow-positive with operating cash flow and free cash flow coming in at $83.5 million and $79.6 million, respectively, for the quarter.
While advertisers might pull back on spending and users might be more hesitant to pay for subscriptions in difficult economic environments, Duolingo's asset-light, freemium model allows it to tap into a range of revenue sources.
Duolingo stock has gained about 50% over the last year. For investors searching for a top growth stock, consider this dominant player in the multibillion-dollar language learning market.
2. Toast
Toast (NYSE: TOST) is a cloud-based technology platform for restaurants. Its platform offers a wide range of services to help restaurants manage every aspect of their operations from delivery and takeout to payroll and inventory.
For example, restaurants can use Toast's point-of-sale (POS) software to reduce the time needed to take an order and quickly handle payments. Its multi-location management tool enables users to manage menus across multiple restaurants. The company even help restaurants grow their businesses by launching loyalty programs and creating email marketing initiatives.
On the hardware side, its Kitchen Display System allows front-of-house staff to interact with kitchen staff through integrated ordering stations, which notify servers when orders are done and provide mobile alerts. It also offers technology like guest kiosks, handheld POS devices, and card readers.
Through this wide variety of offerings, Toast generates revenue from three primary sources: service subscriptions, sales of hardware devices, and financial technology solutions. The lion's share of its top line comes from that last category, specifically transaction-based fees from payment processing.
In the first quarter, Toast's revenue increased 31% year over year to $1.1 billion. The company processed $34.7 billion in gross payment volume for the quarter, up 30%. Toast is still operating at a loss, but it did generate $125 million of free cash flow over the past year.
Early shareholders are staring down steep losses even as the stock has gained 40% year to date. Toast has work to do to on the bottom line, but with its platform serving 112,000 locations, this industry leader is worthy of a buy-and-hold position.
Rachel Warren has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Duolingo and Toast. The Motley Fool has a disclosure policy .
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