Insights for Investors by Investors

Is it time to buy Temple and Webster?

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The Temple & Webster Group Ltd (ASX: TPW) share price could be a buy for a few different reasons.

For people that haven’t heard of Temple & Webster, it’s an Australian online retailer that sells a large array of furniture and homewares. Lots of those products are actually shipped straight from suppliers to customers. However, the company does have its own private-label products as well.

But for multiple reasons, it could be a good business to own for the long-term:

Scalable

When looking at individual businesses, I like to find ideas that are able to steadily become more profitable as they get bigger. In other words, ones that can keep growing their profit margins.

Businesses that utilise a high level of technology are certainly ones to consider when thinking about potential rising margins.

The website is the key aspect of the Temple & Webster business. The website has already been created, so that element of fixed cost becomes a smaller percentage of revenue as it gets bigger, leading to rising margins.

I believe that in several years, Temple & Webster will become a much more profitable business.

Growing quickly

The scalability is attractive, but the ASX tech share is successfully growing revenue at a very fast pace.

In FY21 it achieved revenue growth of 85% to $$326.3 million and EBITDA (EBITDA explained) growth of 141% to $20.5 million.

Looking at the first few weeks of FY22, Temple & Webster achieved 49% revenue growth year-on-year to 27 August.

If Temple & Webster can continue to grow revenue at double digit for many years, combined with the rising profit margins, the bottom line should do well over time. The compound growth of revenue could be very strong.

Big goals

Temple & Webster isn’t looking to play it safe. The company wants to become the biggest retailer of furniture and homewares in Australia. It’s going to invest heavily to achieve it, including rolling out a number of impressive tools for customers, including visualising an item in their space.

I believe that Temple & Webster is a strong force to be reckoned with. Its business model and margins suggest a very compelling future in my opinion. The Temple & Webster share price may seem a bit expensive today, but if it keeps growing quickly I believe it will seem good value in the future.

Information warning: The information in this article was published by The Rask Group Pty Ltd (ABN: 36 622 810 995) is limited to factual information or (at most) general financial advice only. That means, the information and advice does not take into account your objectives, financial situation or needs. It is not specific to you, your needs, goals or objectives. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. Please read our Terms and Conditions and Financial Services Guide before using this website. The Rask Group Pty Ltd is a Corporate Authorised Representative (#1280930) of AFSL #383169.

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