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Top Ten Trader
Discover the Market’s Strongest Stocks

Cabot Top Ten Trader Issue: February 6, 2023

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Here Comes the Test


After a very strong move last Wednesday and Thursday that capped off a great first few weeks of the year, stocks have begun the much-called-for pullback, with some sour earnings from mega-cap tech outfits and a strong jobs report causing angst. This sets up a “good” test for the nascent uptrend—if the sellers swarm, the indexes implode and many recently strong names turtle, that would be a sign the bulls aren’t yet ready to take control. Still, for the first time in a while, the burden of proof is on the bears: To this point, the majority of evidence is positive, from the intermediate-term trend to the health of the broad market to the action of most individual stocks. If something changes, we’ll pare back, but to this point we like what we see. Our Market Monitor now stands at a level 7.

This week’s list has something for everyone, including a few more earnings winners as more firms report. Our Top Pick is Dynatrace (DT), a software name that has a long-lasting growth story and a chart with a big bottom—and a big breakout last week. Aim for weakness if you want in.

Stock NamePriceBuy RangeLoss Limit
Academy Sports & Outdoors (ASO)6159-61.551-52
Box Inc (BOX)3432.5-33.529.5-30
Dynatrace (DT) ★ Top Pick ★4644-45.539-40
Group 1 Auto (GPI)231218-228197-201
Mobileye (MBLY)4139-4133.5-34.5
Nucor (NUE)170163-168145-148
Old Dominion (ODFL)370352-362315-320
Pulte Group (PHM)5754.5-56.549-50
Smartsheet (SMAR)4442.5-44.537.5-38.5
Toast (TOST)2322-23.519-19.5

Stock 1

Academy Sports & Outdoors (ASO)


Buy Range

Loss Limit




Why the Strength
In a rip-roaring growth stock environment, Academy Sports might not be in favor—but in this environment, which is still revving up and sports a lot of special situations and value plays, this stock is kicking into gear after a huge launching pad. The firm is a good-sized national retail player in its field, offering all types of footwear, outdoor and sports gear and apparel for both men and women (each about 50% of sales) and with a balanced selling calendar (each season brings similar levels of sales), too. At the end of October, it had 268 stores in 18 states, mostly in the southern U.S., and importantly, Academy is a top operator, with more sales per store and per square foot of space than all its peers. And management is thinking big: The company opened nine new locations in 2022 but is aiming for a 30%-ish hike in the store count within the next five years. (New locations are EBITDA positive after year one, so the store economics are solid, too.) And the best part is that this growth comes after a moonshot in earnings that occurred during the pandemic—despite forecasts for shrinkage, Academy’s numbers have held relatively firm, with same-store sales off some (likely down 5% or so in 2022) but with e-commerce remaining strong (up 10.5% in Q3, the fifth straight quarter of double-digit increases) and a big share repurchase program helping to keep earnings per share afloat. The end result is that, instead of fading, Academy’s earnings are holding in the upper $7 range and should see upside as new store openings begin to hit the bottom line. It’s an interesting play with both growth and value aspects to it.

Technical Analysis
ASO spent the 10 months from November 2021 building a deep base and attempting to break out, but of course the market wasn’t ready to go last fall—shares pulled back again before making a run to new highs after earnings in December. Once again, the market was still in a holding pattern, so ASO then etched a tight, low-volume, six-week structure, with shares breaking out last week on modest volume. Sure, further near-term dips are possible, but we think shares have likely chewed through most of the overhead remaining; we’re OK starting a small position here or on dips.

Market Cap$4.90BEPS $ Annual (Jan)
Forward P/E8FY 20214.16
Current P/E8FY 20227.60
Annual Revenue $6.46BFY 2023e7.55
Profit Margin9.2%FY 2024e7.78

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($B) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr1.49-6%1.69-3%
One qtr ago1.69-6%2.30-2%
Two qtrs ago1.47-7%1.73-8%
Three qtrs ago1.8113%1.6148%

Weekly Chart


Daily Chart

ASO Daily Chart

Stock 2

Box Inc (BOX)


Buy Range

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Why the Strength
Application software companies as a group fell out of favor after the pandemic, but the ongoing need for workflow automation is still providing a nice tailwind for cloud storage firm Box. The California-based company is a provider of collaboration and file-sharing tools for businesses, boasting 68% of the Fortune 500 (and nearly 100,000 firms in total) as clients. Its specialty is cloud-based content management that can be shared anywhere with any device, including software as a service (Saas) offerings that allow collaboration internally and externally. The post-pandemic persistence of the remote work and distributed team trends accounts for much of Box’s persistent strength even as IT budgets tighten; additionally, the company’s multi-product strategy has enabled Box to win around 50% of its new deal bookings from existing customers who are buying more than one Box offering. On the financial front, Box posted revenue of $250 million in fiscal Q3 (ended last October) that improved 12% from the year-ago quarter, along with slightly above-consensus EPS of 31 cents. Billings were up 12%, mainly due to increased early renewals, while free cash flow rose an eye-popping 77%. The company remains on track to achieve increased annual revenue growth, higher margins and “prudent” capital allocation despite headwinds from inflation. When Box reports Q4 results on March 1, revenue and billings are expected to increase 10%, while per-share earnings are expected to jump 46% (in line with analyst estimates). Longer term, Box is only about 2% penetrated in the estimated $74 billion market for content storage, collaboration and data security, leaving lots of room to run. It’s a steady growth story in a competitive market.

Technical Analysis
BOX managed to sidestep most of the damage the bear inflicted on many of its cloud industry peers in 2022. It hit an all-time peak at 33 in mid-April last year and dropped to 23 two months later, but this proved to be its worst retreat of the year. Shares perked up after that, jumping to 31 in August, then pulling back one last time to establish a higher low in September. It’s been choppy, but the action has been solid since then, with a decent-volume push to new highs last week. As with most names, we think pullbacks offer the best bet if you want in.

Market Cap$4.93BEPS $ Annual (Jan)
Forward P/E29FY 20210.70
Current P/E33FY 20220.85
Annual Revenue $967MFY 2023e1.17
Profit Margin20.6%FY 2024e1.46

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr25012%0.3141%
One qtr ago24615%0.2833%
Two qtrs ago23818%0.2328%
Three qtrs ago23317%0.249%

Weekly Chart

Box Weekly Chart

Daily Chart

BOX Daily Chart

Stock 3

Dynatrace (DT) ★ Top Pick ★


Buy Range

Loss Limit




Why the Strength
Corporations everywhere are using cloud environments these days, but that doesn’t mean they’re simple. Dynatrace sells software and services that assist enterprises in monitoring the status and operability of all the software and systems they have running in the cloud. Called full-stack monitoring and analysis (FSMA), it’s a growth business: Sales in the December quarter were up 24% to $298 million, results that downplay the strength of the 40% of clients that are outside the U.S. given the strengthening dollar. (Currency-neutral revenues, as well as recurring revenue, were both up 29%.) Already used by 3,300 companies, Dynatrace benefits from a need from enterprise-level outfits to automate their systems, as surveys show development and operations departments spend 30% of their time manually fixing errors and security vulnerabilities in the cloud, time companies would rather see spent innovating. The company’s sales strategy is to get any foothold into a business they can and expand the services they sell into it over time. Deployed in full, Dynatrace uses AI to test and monitor all of a firm’s systems and recommend how to optimally use tech resources to lower costs and hike efficiency while also providing constant security to increasingly frequent attempts from hackers. The typical customer spends upwards of $300,000 annually with Dynatrace, which should translate to full-year revenue close to $1.2 billion for fiscal 2023, which ends in March. Expect the current quarter to produce sales of $305 million while management should also boost the gross margin. Dynatrace emphasizes its forecasts conservatively, a move that allowed fiscal Q3 results to beat expectations. The company hasn’t laid out revenue expectations for fiscal 2024, but Wall Street is expecting another round of 20%-plus revenue growth while earnings approach $1 per share and free cash flow comes in much larger than that.

Technical Analysis
DT got nailed from late 2021 into early May along with most every software stock, but then began a very nice bottoming effort—during the next eight months, not only did shares hold their May low but they gradually tightened up, especially after a solid earnings reaction in early November. Last week saw the quarterly report gap shares higher, and they encouragingly followed through nicely, too, reaching 10-month highs. We’re not expecting a major pullback but would aim for weakness if you want in.

Market Cap$13.3BEPS $ Annual (Mar)
Forward P/E53FY 20210.63
Current P/E56FY 20220.66
Annual Revenue $1.10BFY 2023e0.87
Profit Margin24.7%FY 2024e0.98

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr29824%0.2539%
One qtr ago27923%0.2222%
Two qtrs ago26727%0.1813%
Three qtrs ago25329%0.1713%

Weekly Chart

DT Weekly Chart

Daily Chart

DT Daily Chart

Stock 4

Group 1 Auto (GPI)


Buy Range

Loss Limit




Why the Strength
The stats are in, and 2022 will go down as the worst in over a decade for U.S. new vehicle sales, according to industry estimates. However, a relative handful are experiencing boom times, and Group 1 is a standout in this category. The firm is a leading auto retailer operating vehicle dealerships and collision centers in 17 U.S. states and across 35 towns in the U.K. Through its omnichannel-channel platform, the company sells new and used cars and light trucks, arranges financing and provides maintenance and repair services, with auto sales accounting for over 80% of the firm’s revenue and just over 50% of the total coming from new vehicle sales. Earnings have catapulted along with selling prices (limited supply of new cars) since the pandemic, and while things are returning to normal, that’s happening at a slow pace—which means Group 1’s bottom line is still super strong. In Q4, the firm’s revenue of $4.1 billion was 14% higher from a year ago—and up 20% for the full year—while per-share earnings of $10.86 beat estimates by 13 cents. In spite of industry-wide new and used vehicle prices falling, the company said its quarterly performance in the U.S. segment was “outstanding” and generated double-digit same-store sales growth, following high-teens growth from a year ago. Collision revenue increased 14% in Q4, with warranty and wholesale sales rising 8% and 3%, respectively. Also noteworthy was a record 10,000+ vehicles sold through Group 1’s AcceleRide online sales platform, accounting for 15% of its U.S. retail sales! Shareholder returns are a big focus for management, with the share count down a whopping 19% in Q4 from a year ago and with nearly $150 million left on the buyback authorization (around 5% of shares outstanding). Going forward, 2023 should see a bit of retrenchment, but earnings should still total nearly $40 per share.

Technical Analysis
GPI’s post-crash run peaked in late 2021 near 212 and the stock ground sideways-to-lower during the next 10 months, with three legs down and a low last September around 136. After a nice rebound late in the year, there was one more sharp shakeout in December, but GPI has been smoke up a chimney since then, especially after earnings on January 25. We think dips are likely and should provide a good entry point.

Market Cap$3.50BEPS $ Annual (Dec)
Forward P/E6FY 202134.55
Current P/E5FY 202245.82
Annual Revenue $16.2BFY 2023e38.92
Profit Margin3.9%FY 2024e37.22

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($B) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr4.0717%10.8615%
One qtr ago4.1622%12.0027%
Two qtrs ago4.1514%12.0018%
Three qtrs ago3.8430%10.8196%

Weekly Chart

GPI Weekly Chart

Daily Chart

GPI Daily Chart

Stock 5

Mobileye (MBLY)


Buy Range

Loss Limit




Why the Strength
Automakers are gobbling up Mobileye’s SuperVision products, an advanced driver assist system (ADAS) that uses 11 cameras, a series of sophisticated computer chips and company-filmed and analyzed surveys of nearly all the roads in the U.S. and Europe to increasingly do much of the driving of vehicles, from crash avoidance to changing lanes and parallel parking. Management reported in its full-year results last week that there has been a large uptick in automaker interest in SuperVision, sparked by the adoption of the system by Chinese automaker Zeekr. Until they signed on, the near totally autonomous driving system was only deployed as a proof of concept in Israel. The expansion to a much larger geography has Wall Street believing Ford and Volkswagen, who buy other ADAS parts from Mobileye, may roll the system into new vehicles in the years ahead. SuperVision only joined Mobileye’s product lineup late last year, but the company was already seeing great demand for its ADAS systems like EyeQ, a chip and development kit that allows automakers to build ADAS to their own specifications. In 2022, revenue was up 35% to a consensus-beating $1.87 billion, with growth accelerating through the year – Q4 sales rose 59%. ADAS is a total addressable market of $16 billion right now, and investors like Mobileye because it is taking share in a rapidly growing market—though, to be fair, the first half of 2023 could reflect some headwinds as Mobileye pushes through higher pricing. The price hikes along with the higher cost SuperVision should push total profits up, on an average system sales price in the low $60 range compared to $53 in 2022. Sales growth could slow to around 20% this year, while huge investments are likely to keep earnings in check, but CapEx should decline from there and allow the bottom line to flourish.

Technical Analysis
MBLY has been an IPO success story in an otherwise difficult market, which itself is a bullish sign. Its late October IPO priced at 21, and shares rallied to 37 before a sharp dip to 29 or so to start the year. But MBLY surged after that, with a nice breakout after earnings on a few days of solid volume. Day-to-day volatility is very high, as recent IPOs tend to be squirrelly, as today’s dip showed. Even so, we’re game for a small position here or on further weakness and a loose stop.

Market Cap$33.9BEPS $ Annual (Dec)
Forward P/E62FY 20210.59
Current P/E56FY 20220.75
Annual Revenue $1.87BFY 2023e0.68
Profit Margin38.1%FY 2024e0.87

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr56559%0.27125%
One qtr ago45038%0.148%
Two qtrs ago46041%0.1936%
Three qtrs ago3945%0.15-25%

Weekly Chart

MBLY Weekly Chart

Daily Chart

MBLY Daily Chart

Stock 6

Nucor (NUE)


Buy Range

Loss Limit




Why the Strength
After three months of contraction, China’s manufacturing sector rebounded strongly in January, prompting the International Monetary Fund to predict a faster-than-anticipated recovery for that nation’s economy. China’s industrial production surge is good news for the steel industry, which is expected to firm up after last year’s China-induced setback. One of the leading players in this space is Nucor, which is America’s largest steel producer and biggest scrap recycler. The fourth quarter may have been a nadir for steel prices, which hit their lowest in over three years, which flowed through to Nucor’s Q4 results: In the quarter, the firm’s revenue of $8.7 billion was 16% lower than the year-ago quarter and per-share earnings of $4.89 were 39% lower, though the figure did crush estimates by 73 cents. Despite lower steel prices, margin compression and lower operating rates, 2022 was the company’s most profitable year ever as the firm generated strong cash flow with a record $12 billion in EBITDA, allowing the company to return $3.3 billion to shareholders via dividends (1.2% annual yield) and share repurchases (share count was down 9% in Q4 from a year ago), putting it on the Dividend King list (one of just 43 companies to raise its base dividend for 50 years) for the first time. More important, though, is that any steel industry retrenchment should be much milder than previously thought—management said it’s starting to see “a number of demand drivers gathering momentum,” including the reshoring of manufacturing in the U.S., large infrastructure investments and grid modernization. The top brass also expects “strong profitability” at its steel mills to continue in Q1 due to higher margins and volumes, with the largest improvement expected to occur at its sheet mills. Wall Street sees a big dip in earnings this year, but even if that’s correct, Nucor’s bottom line should still be about double that of its peak years before the pandemic.

Technical Analysis
Like many commodity-oriented issues, NUE hit a major top last spring and quickly deflated on the back of a strengthening U.S. dollar and a weakening China outlook; shares fell more than 40% over 11 weeks before hitting rock bottom at 100 in early July. A rally to 145 followed into August before the stock reversed and revisited the prior low. But buyers made a strong return in October and, after a December shakeout, pushed NUE to a record high last week. A bit more weakness would be tempting.

Market Cap$45.6BEPS $ Annual (Dec)
Forward P/E14FY 202123.16
Current P/E6FY 202228.79
Annual Revenue $41.5BFY 2023e12.63
Profit Margin14.4%FY 2024e11.08

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($B) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr8.7-16%4.89-39%
One qtr ago10.52%6.50-11%
Two qtrs ago11.834%9.6792%
Three qtrs ago10.550%7.67147%

Weekly Chart

NUE Weekly Chart

Daily Chart

NUE Daily Chart

Stock 7

Old Dominion (ODFL)


Buy Range

Loss Limit




Why the Strength
Old Dominion is a less-than-truckload (LTL) shipper offering regional and national ground and air-expedited shipping services. The company also provides truckload brokerage, warehousing and supply chain consulting—all in, it’s one of the world’s largest truck shippers based on total freight. Old Dominion also has one of the highest margins in the transportation industry, helped by its flexibility in being selective about deliveries and being able to deliver freight to multiple customers per truck. This was a boon for the company in the last couple of years when supply chains were severely fractured, and while there’s been some improvement lately, supply chains aren’t going back to the good old days any time soon, which should bode well for Old Dominion. Last week, the company reported stellar Q4 results featuring a 10th straight quarter of double-digit EPS growth, driven by operational improvements and a sharp decrease in purchased transportation costs. Revenue of $1.5 billion rose 6% from the year-ago quarter (up 19% for the full year), led by a 7% jump in LTL services revenue, while earnings of $2.92 per share beat estimates by 25 cents. Also included in the results was a 17% increase in LTL revenue per hundredweight that more than offset an 8% decrease in the LTL tons per day in Q4, a clear sign that pricing remains strong. The company was also busy returning capital to shareholders in Q4 by way of $1.3 billion in share repurchases (3% of the float) and $135 million in cash dividends (0.4% yield) while increasing the quarterly dividend by 33%. The big idea here is the same as many cyclical stocks—after earnings soared in the pandemic, investors had been thinking things would return to normal, but they aren’t, which should keep Dominion’s bottom line perched near $12 per share in 2023.

Technical Analysis
After three straight years of the bulls being in charge, ODFL ran into trouble in December 2021, peaking at 370 as economic fears took hold. Shares turned south and were in decline for six months, finally coming to rest above 230 last June. A higher low in September set the stage for a move above the 40-week line, and after one more dip, ODFL tagged new highs briefly last week following its earnings gap. We like the breakout but would look for dips if you want in.

Market Cap$41.2BEPS $ Annual (Dec)
Forward P/E31FY 20218.89
Current P/E30FY 202212.18
Annual Revenue $6.26BFY 2023e11.94
Profit Margin21.7%FY 2024e13.23

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($B) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr1.496%2.9221%
One qtr ago1.6015%3.3636%
Two qtrs ago1.6726%3.3043%
Three qtrs ago1.5033%2.6053%

Weekly Chart

ODFL Weekly Chart

Daily Chart

ODFL Daily Chart

Stock 8

Pulte Group (PHM)


Buy Range

Loss Limit




Why the Strength
PulteGroup is the nation’s third largest residential homebuilder based on the number of homes closed, with operations in over 40 major cities. While rising mortgage rates weighed on buyer demand for much of last year (PulteGroup’s net new orders were down 41% in Q4 from a year ago), the company saw buyer demand improve later in the fourth quarter and confirmed the strength continued into January as the benchmark 30-year mortgage rate has dropped a full point since November. (A one percentage point reduction in rates can allow as many as three million more mortgage-ready consumers to qualify for a loan using the U.S. median home price, according to Freddie Mac.) Last week’s Q4 report for PulteGroup came in well above expectations despite higher cancellation rates. Total revenue of over $5 billion was 19% higher from a year ago, while EPS of $3.63 (up 45%) topped estimates by 24%. The upbeat results were driven by a 3% increase in closings, plus a 17% increase in the average sales price. Of course, the future looks less bright: Unit backlog at the end of Q4 totaled 12,169 homes with a value of $7.7 billion, down 32% and 22%, respectively, both reflecting headwinds from the higher rate environment in recent months. Longer term, along with decreasing land spend this year, the firm plans to improve home production times while increasing shareholder returns (PulteGroup reduced the share count by nearly 10% in 2022 through buybacks). The top brass said the inventory of existing homes for sale—its biggest source of competition—is limited, which should be supportive of business. Wall Street is assuming a huge retrenchment in earnings, but much of that has been discounted, with the stock trading at just 8x estimates.

Technical Analysis
PHM spent all of 2022 with a hangover from the pandemic-era boom; shares deflated after a May 2021 peak at 64 as investors began to discount slower times ahead as rates skyrocketed. The stock finally bottomed last June, with a higher low etched in October, but PHM’s turnaround of the last 15 weeks has been solid, punctuated by last week’s high-volume earnings gap. The group is a bit extended here, so aim for a pullback of a point or two to start a position.

Market Cap$13.4BEPS $ Annual (Dec)
Forward P/E8FY 20217.36
Current P/E6FY 202210.88
Annual Revenue $16.2BFY 2023e7.32
Profit Margin16.1%FY 2024e7.00

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($B) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr5.1719%3.6345%
One qtr ago3.9413%2.6948%
Two qtrs ago3.9317%2.7359%
Three qtrs ago3.1917%1.8343%

Weekly Chart

PHM Weekly Chart

Daily Chart

PHM Daily Chart

Stock 9

Smartsheet (SMAR)


Buy Range

Loss Limit




Why the Strength
The cloud software sector was the big winner in the last bull cycle, so we don’t expect that to repeat—but that doesn’t mean there won’t be some individual winners in the group that have a solid story. Smartsheet seems to be one of the winners (if not the winner) in the work management space, which is growing like mad: Whereas old ways of organizing, tracking and assigning tasks on a number of teams working on a projects used to be filled with inefficiencies, Smartsheet allows firms to better plan and track their work, with a single point of record that everyone can access and see progress from a variety of viewpoints. Collaboration can occur both inside and outside a firm, with comments and streamlined approval tools right in the sheet, along with easily produced reports and dashboards—and all of it integrates with many popular business software suites. All of this is more important than ever in a world where mobile work is more the norm than the exception and where things change more quickly than ever. It sounds a bit generic, but the platform reportedly produces huge returns on investment, and the proof is in the numbers: 90% of the Fortune 100 and 80% of the Fortune 500 are clients of Smartsheet (11.7 million end users as a whole), and they’re buying more modules as time goes on, too, with a same-customer revenue growth rate of 29% in Q3 and with larger customers growing even faster (clients buying at least $100,000 a year from Smartsheet now total 1,346, up 55% from the year before). To be fair, growth is expected to slow in the year ahead, and the bottom line is “only” near break-even, but the stock is acting like these figures will prove conservative as more huge enterprises standardize their workflows on Smartsheet.

Technical Analysis
SMAR really wasn’t much of a leader in the last bull cycle, at least compared to its peers, and it got nailed with the bear along with everything else. But the low of 27 in June was effectively the bottom, with shares briefly shaking out to lower levels in November before changing character—SMAR took off after its Q3 report in early December, and while volatility remains high, shares have pushed to their highest level since last May even as many peers are still languishing. We wouldn’t chase it, but modest dips or a rest of a week or two would be intriguing.

Market Cap$5.93BEPS $ Annual (Jan)
Forward P/EN/AFY 2021-0.33
Current P/EN/AFY 2022-0.28
Annual Revenue $712MFY 2023e-0.31
Profit MarginN/AFY 2024e-0.07

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr20038%-0.01N/A
One qtr ago18742%-0.10N/A
Two qtrs ago16844%-0.18N/A
Three qtrs ago15743%-0.12N/A

Weekly Chart

SMAR Weekly Chart

Daily Chart

SMAR Daily Chart

Stock 10

Toast (TOST)


Buy Range

Loss Limit




Why the Strength
Most bull cycles have at least one payment stock that is part of the leadership parade; Shift4 is one that acts well, and Toast is another newer name that also has excellent growth potential. As the name (sort of) suggests, Toast is all about the restaurant industry, which is a massive sector in the U.S. (860,000 locations with $800 billion in sales), not to mention overseas (another 21 million locations), yet one that’s often behind the times in adopting technology, creating challenges for online ordering, curbside pickup and a lack of useful data to improve operations. While there’s competition (including from Shift4), Toast has the industry’s leading all-in-one solution, providing point of sale, team/payroll management, marketing, loyalty programs, digital ordering and waitlists, inventory management, loans and much more, all delivered via the cloud (subscription basis). Growth has been swift for years: At the end of Q3, the firm had 74,000 locations as clients (up 42%) that produced gross payment volume of $25.2 billion (up 53%) and annualized recurring revenue of $868 million (up 60% from the year before), thanks to new sign-ups but also bigger initial contracts and lots of upsells—and that ARR figure is just a small slice of what it sees as a $15 billion serviceable market in the U.S. alone. The risk here is competition and whether Toast can successfully penetrate more quick-service locations, which are mostly run by big outfits, but so far, it’s obvious that the firm is getting traction, with its client count tripling (!) during the past three years. Revenue growth is rapid and should easily remain in the 35%-plus range in 2023, and while free cash flow and earnings are still a bit below breakeven, that hasn’t stopped 476 funds from grabbing shares (up from 276 six months before). The Q4 report is due February 16.

Technical Analysis
TOST came public near the bull peak in late 2021 and proceeded to implode more than 80% to its May low. But that was effectively the bottom, with shares retesting the low in late June, rallying in the summer and then bobbing and weaving for a few months between 16 and 23. And now TOST is stretching its legs, hitting multi-month highs on two straight weeks of good volume. We’d keep it light ahead of earnings, but are OK picking up a few shares here with a loose stop.

Market Cap$12.0BEPS $ Annual (Dec)
Forward P/EN/AFY 2020-0.49
Current P/EN/AFY 2021-0.97
Annual Revenue $2.48BFY 2022e-0.14
Profit MarginN/AFY 2023e-0.07

Qtrly RevQtrly Rev GrowthQtrly EPSQtrly EPS Growth
($M) (vs. yr-ago-qtr)($)(vs. yr-ago-qtr)
Latest qtr75255%-0.19N/A
One qtr ago67558%-0.11N/A
Two qtrs ago53691%-0.05N/A
Three qtrs ago512111%0.01N/A

Weekly Chart

TOST Weekly Chart

Daily Chart

TOST Daily Chart

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1/17/23American AirlinesAAL16.3-17.317
1/30/23ASML IncASML632-655662
10/24/22Axon EnterprisesAXON133-136196
12/5/22BioMarin PharmBMRN101-105112
1/30/23Boot BarnBOOT81-8485
1/17/23Commercial MetalsCMC53-54.556
1/30/23Discover Fin’lDFS112-115117
1/17/23Exact SciencesEXAS63-65.567
1/17/23First SolarFSLR170-175168
11/7/22Five BelowFIVE145-150199
1/3/23Freeport McMoRanFCX39.5-4143
1/17/23Hyatt HotelsH102-105111
1/23/23Inspire MedicalINSP247-254244
1/17/23Jabil Inc.JBL74.5-7783
1/23/23Noble Corp.NE39-40.540
1/30/23On HoldingONON21.5-22.522
12/19/22Planet FitnessPLNT73.5-75.582
1/9/23Reliance SteelRS211-215234
11/21/22Shift4 PaymentsFOUR44-4666
1/30/23Starbulk CarriersSBLK21.2-22.222
1/30/23Steel DynamicsSTLD114-117124
1/23/23Toll BrothersTOL53-5560
1/23/23United AirlinesUAL47.5-5051
1/30/23Valero EnergyVLO134-138128
12/5/22Wynn ResortsWYNN81-84103
1/17/23Yum ChinaYUMC59.5-6158
1/30/23Axcelis TechACLS101.5-104.5116
1/30/23Southern CopperSCCO71-73.575
1/17/23Array TechnologiesARRY21.5-2321
None this week

The next Cabot Top Ten Trader issue will be published on February 13, 2023.

A growth stock and market timing expert, Michael Cintolo is Chief Investment Strategist of Cabot Wealth Network and Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides, which has helped Cabot place among the top handful of market-timing newsletters numerous times.