The Temple & Webster Group Ltd (ASX: TPW) share price could double in 3 years, according to a leading fund manager. Let’s take a look.
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Online furniture retailer Temple & Webster Group Ltd (ASX: TPW) shares can double over the next 3 years, according to Regal Funds Management’s Todd Guyot.
The fund manager shared this opinion at the Sohn Hearts and Minds virtual investment conference hosted today. At the time of writing, the Temple & Webster share price has slipped in afternoon trade, dipping 0.8% to $10.02.
What did the fund manager say
Mr Guyot told the conference COVID-19 had accelerated Temple & Webster’s revenue growth this year by more than 74%. Strong growth also continued in the months after lockdown restrictions were lifted, with 160% sales increase in August, followed by a 100% increase in September. He said this demonstrated “the impact of repeat customers, which is a direct correlation with the customer experience”.
Mr Guyot said he believed the online retailer had now reached scale, evidenced by the fact that earnings generated in the first quarter of 2021 were higher than all of 2020, a trend which he believes will continue.
In addition, the company had an “attractive” negative working capital – a cashflow model where it received customer payments upfront, and suppliers were paid at a later date. As sales increase, this model generates a lot of cash up front, and the more cash it’s able to generate, the faster its sales can grow – giving it a snowball effect.
Mr Guyot compared Temple & Webster’s growth profile to that of US online home retailer Wayfair (NYSE: W), where the market has consistently underpriced its growth potential. He says this underpricing might be happening to Temple & Webster as well.
In conclusion, he advised investors to ignore short term periods of market volatility. The Temple & Webster share price “we think can double over the next three years”, Mr Guyot said.
Quick take on Temple & Webster
Temple & Webster was first floated on the ASX in 2016, and at the time was widely regarded as the worst float of 2016. In that first year of public trading, the company suffered bottom-line losses of $44 million. It also lost $14.8 million in earnings before interest, tax, depreciation and amortisation (EBITDA). This number was almost twice the $8.5 million loss forecast in its December 2015 prospectus.
Fast forward to 2019, the company was doing much better – reporting its first full year profit of $1.1 million. That result proved to be a drop in the ocean compared to its first quarter FY21 profit of $8.6 million– a figure which is 7 times the 2019 result, and more than what the company made for all of fiscal 2020.
The Temple & Webster share price vs its competitors in 2020
The Temple & Webster share price, like many e-commerce shares, has rocketed in 2020. At today’s trading, the Temple & Webster’s share price has shot up up by 280% on a year-to-date basis. In comparison to other e-commerce players, the Kogan.com Ltd (ASX: KGN) share price is up 160% this year, and Redbubble Ltd (ASX: RBL) is up by 310% in 2020.
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Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.