The stock market is having a good year in 2023, reversing a brutal 2022 S&P 500 The index is up 23% so far and is more volatile Nasdaq Composite is up 52% as of this writing. Both market trackers are essentially back to where they were at the end of 2021.
But some stocks didn’t get the 2023 memo about a robust recovery. Restaurant management expert toast (TOST 1.60%) has seen a sideways movement in its share price this year, resulting in a decline of 47% over the past two years. Artificial intelligence (AI) specialist. SoundHound AI (SOUN 2.90%) is up 19% year-to-date, but the stock is still trading 72% lower on a two-year basis.
Both stocks are relatively new to the public stock market, having been publicly offered for the first time in the last two years. Most investors fear that Toast and SoundHound may not be of much use in the long run.
However, I disagree. These seemingly fresh upstarts have actually been around for years, and I like where they’re going. In my opinion, Toast and SoundHound are top-notch tech stocks with bright future prospects. Here’s why it looks like these are incredibly expensive tech stocks to buy while shares are cheap.
Toast simplifies a complicated business
If you keep an eye out at your local restaurants, you may have seen Toast’s products and services. The company offers a comprehensive restaurant management platform that helps food service managers run their businesses.
When I say “comprehensive” I mean that it is a complete system that can do pretty much everything. Toast’s cloud-based software can manage menus and inventory, process customer payments, handle payroll and staff scheduling, create an effective marketing campaign based on current business data, and more.
The food service market is highly fragmented and most restaurants use tools from many vendors to handle these critical tasks. In some cases, an overloaded laptop in the back room can manage an inconvenient amount of important spreadsheet processes. Handwritten notes are another fairly common alternative. And when there is appropriate software to manage different parts of the restaurateur’s work pie, they’re usually not designed to work together.
This is where toast comes into play. Its modular platform can start with just a few features and then expand to cover other processes as the company grows. There is a free tier for single-location restaurants that want to try this solution at an extremely low price. Toast’s “core” package, which includes most of Toast’s essential services, costs $69 per month, and larger chains can negotiate individual deals.
And the company does its own sales and marketing in a uniquely efficient way. Toast rarely runs national advertising campaigns. Instead, the company focuses on a few key markets, aggregating these hyperlocal audiences into hands-on sales efforts and relying on strong word-of-mouth marketing that results from successful implementations.
This approach may sound like a mismatch with the vast and global restaurant market, but I think it’s a smart approach. Twenty percent of the company’s new customers are referrals from existing customers. As a result, toast is growing by leaps and bounds. Revenue rose 37% year-over-year in its most recent third quarter, driven by a 46% increase in subscription-based sales.
TOST sales data (TTM) from YCharts
Toast had sales of $3.6 billion in the 12 months ended September. The total available annual revenue in the US market is $55 billion, and the global opportunity is at least twice as large. Toast has been polishing its products since 2011, but this turbulent growth story still has a long way to go.
Things will change when Toast stops offering basic deals to small and medium-sized restaurants and moves on to larger chains. Although it remains to be seen how well the solutions will work for customers of completely different sizes, the insights gained at the outset should lead to high-quality solutions for every type of customer.
There aren’t many high-growth stocks that reach just 2.7 times sales, but that’s where Toast stands today. In my opinion this is a clear buy.
SoundHound teaches an old tool new tricks
You can think of SoundHound as a simple song search smartphone app that identifies tunes based on a quick analysis of a sound snippet. not how Apple The SoundHound tool, a subsidiary of Shazam, doesn’t require the original melody, but can work with your own singing or humming in a pinch. That’s the power of SoundHound’s AI analysis, based on nearly two decades of research and inquiries.
But this app was never a big money maker. In recent years, SoundHound has been looking for new uses for the underlying technology. Meanwhile, voice recognition platform Houndify offers voice commands and AI conversation experiences, typically as a feature in some other companies’ offerings. The new business started in the automotive industry with early customers like Hyundai And Mercedes Benz. Social media and media streaming services soon followed, and SoundHound counted giants like Netflix And Snap will be among its customers until 2020.
And the ambition didn’t stop there. After raising $79 million in cash through an initial public offering and a subsequent stock sale, the company expanded its natural language speech recognition and interpreting technology to the restaurant industry. And it’s a small world – Toast quickly invited SoundHound to support its point-of-sale systems. Recently, SoundHound introduced a more powerful voice recognition tool for the hospitality industry, known as Employee Assist. This platform not only takes orders, but also delivers all sorts of information to employees and customers in noisy environments, all controlled by precise voice commands. See, music matching expertise has taught SoundHound some unique and helpful tricks.
So SoundHound is addressing several huge markets at once and is probably looking for more industry-specific ideas to explore. The company’s revenue growth has been bumpier than Toast’s, which makes sense since its total revenue streams so far are significantly smaller. Nevertheless, sales are increasing rapidly and profit losses are shrinking as business expands:
SOUN sales data (TTM) from YCharts
This stock is also slightly more expensive than Toast stock, changing hands at 14 times sales. That’s after an 86% decline from its all-time high shortly after its IPO in May 2022. The stock is quite volatile, as befits a small-cap company that has only relatively recently focused on actually raising money earn.
But the company’s expertise is unquestionable, and I’m excited about the steady influx of new customers and entire industries looking for effective voice control solutions. This is another super-charged tech stock that has plenty of positive growth ahead as long as you can stomach the stock’s increased volatility.