EML Payments and Temple & Webster are two ASX growth shares with potential.
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ASX growth shares are businesses that are operationally growing at a quick pace, or expected to.
Over time, companies that are experiencing a lot of growth may be able to achieve attractive returns for shareholders, if the market sends that share price higher.
These two ideas have growth prospects:
Temple & Webster Group Ltd (ASX: TPW)
Temple & Webster is a leading e-commerce retailer that specialises in furniture and homewares.
In the past two years the Temple & Webster share price has risen more than 360% as the business achieved high levels of growth.
The business achieved full year revenue growth of 85% in FY21 alone. Temple & Webster has been benefiting from a number of “strong” tailwinds including the ongoing adoption of online shopping due to structural and demographic shifts, an acceleration of these trends due to COVID-19, an increase of discretionary income due to travel restrictions and strong housing market growth.
Temple & Webster is investing a lot into growth areas of the business to grow its online market leadership position with the ultimate goal of becoming the largest retailer (online and offline) for furniture and homewares in its home market.
It’s operating in a $16 billion market where less than 10% of that is sold online. The ASX growth share has a negative working capital model with 74% of sales from a drop-ship with no inventory risk.
Some of the areas that it’s investing in is its technology, including further investment in the AI interior design start-up, it has launched augmented reality and it has expanded the technology and product team (both onshore and offshore).
It’s currently rated as a buy by Credit Suisse with price target of $15.89.
EML Payments Ltd (ASX: EML)
EML Payments is one of the businesses that is enabling the transition of the western world to digital payments in various forms.
This ASX growth share says it provides an innovative payment solutions platform, helping businesses all over the world create “awesome customer experiences”. Wherever money is in motion, its technology can power the payment process, so money can be moved quickly, conveniently and securely.
EML Payments recently held its AGM and outlined three things to investors. First, it said its business is growing very strongly and its earnings guidance has not changed.
The company said it’s making “solid” progress with its remediation efforts within its Irish subsidiary PCSIL (PFS Card Services Ireland Limited) and expect the outstanding issues with the Irish regulator, the Central Bank of Ireland (CBI) to be resolved.
Finally, it pointed out that its Sentenial acquisition opens up the world of opening banking to EML, which it described as one of the most exciting opportunities in the payments sector.
The EML Chair Peter Martin said at the AGM:
We are obviously very disappointed with the large drop in our [EML] share price related to the CBI matter. In our view, the present valuation significantly understates the fundamental value and the upside potential of EML.
EML points out that over 85% of its revenue is recurring, which provides a “very strong” underlying platform for growth.
Looking at the performance of the business in the first quarter of FY22, revenue increased 29% to $52.4 million, gross profit went up 20% to $34.4 million and underlying net profit (NPATA) went up 41% to $4.6 million.
Management said its growth was excellent despite its temporary inability to launch in programs in Europe associated with the PCSIL entity.
UBS rates EML as a buy, with a price target of $4.40.
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Motley Fool contributor 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 and has recommended EML Payments and Temple & Webster Group Ltd. The Motley Fool Australia owns shares of and has recommended EML Payments. 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.