There are some smaller ASX shares that are growing revenue and profit very rapidly. One of those businesses is Pushpay Holdings (ASX:PPH).
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There are some ASX shares that are growing revenue and profit rapidly.
Many investors look at revenue and profit growth as measures as how to value a business.
Here are two of the fastest-growing companies right now:
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is an online-only furniture and homewares retailer. It has over 180,000 products on sale from hundreds of suppliers. It operates a drop-shipping model, where products are sent directly to customers from suppliers which enables faster delivery times and reducing inventory requirements and also allowing a larger product range.
The ASX share also has a private label range which is sourced directly by the company from overseas suppliers.
In FY20 the company achieved full year revenue growth of 74% to $176.3 million. As online shopping accelerated during the 2020 calendar year, so did Temple & Webster’s revenue. Second half revenue was up 96% and fourth quarter revenue went up by 130%. Active customers went up by 77%.
Earnings before interest, tax, depreciation and amortisation (EBITDA) went up by 483% to $8.5 million because of operational leverage. The adjusted EBITDA margin improved from 2.5% to 5.3%.
Management explained that the strong result, combined with the negative working capital nature of the business model allowed it to finish FY20 with $38.1 million of cash.
The company said at its annual general meeting (AGM) that it’s making larger investments in areas such as technology and data, brand awareness and private label products. It can produce more content by having more creative resources. The ASX share said that the bigger it becomes, the better and stronger its customer proposition becomes, which it described as a virtuous cycle.
In terms of growth in FY21, the latest insight the market has is Temple & Webster’s trading update to 19 October 2020 which showed that revenue was up 138%. FY21 first quarter EBITDA was $8.6 million, which was more than the whole of FY20. October revenue growth was more than 100%. Temple & Webster’s contribution margin continued to run ahead of its 15% target.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is an ASX share that specialises in digital donation tools for large and medium US churches.
Growth has accelerated over the last 12 months during the COVID-19 pandemic.
In FY20 Pushpay reported that its operating revenue increased by 33% to US$127.5 million with total processing volume growing by 39% to US$5 billion.
In the FY21 half year result, operating revenue grew by another 51% to US$86.6 million. The ASX share said it expects to see continued revenue growth as the business executes on its strategy, achieves increased efficiencies and gains further market share in the US faith sector. Half-year total processing volume went up by 48% to US$3.2 billion.
Pushpay boasted that its diligent approach to optimising the gross margin continues to drive pleasing results. In the FY21 half-year result its gross margin improved from 65% to 68%.
Operating expenses only grew by 16% in the period, compared to operating revenue growth of 53%. Operating leverage improved because of the revenue growth, further margin improvements and disciplined cost management. Pushpay is expecting significant operating leverage to accrue as operating revenue continues to increase while total operating expense growth remains low.
In the half-year result, the earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) margin jumped from 17% to 31%. Net profit after tax (NPAT) went up 107% and operating cashflow rose 203%.
The ASX share recently increased its EBTIDAF guidance for FY21, to a range of US$56 million to US$60 million. This would represent an increase of more than 100% over the year.
At the current Pushpay share price, it’s valued at 20x FY23’s estimated earnings according to Commsec.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended PUSHPAY FPO NZX. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.