Where next for the Temple & Webster (ASX:TPW) share price?

Where is the Temple & Webster Group Ltd (ASX:TPW) share price going from here? One leading broker thinks it is heading much higher…
The post Where next for the Temple & Webster (ASX:TPW) share price? appeared first on The Motley Fool Australia. –

Woman in mustard yellow blouse on laptop holds both hands out to either side with graphic illustration of question marks above them

The Temple & Webster Group Ltd (ASX: TPW) share price is back on form again on Wednesday after dropping lower yesterday following its half year update.

In morning trade, the online furniture and homewares retailer’s shares are up 5% to $11.10.

What happened in the first half?

As I covered here yesterday, Temple & Webster delivered very strong growth during the first half of FY 2021.

The company reported a 118% increase in revenue to $161.6 million and a 556% jump in earnings before interest, tax, depreciation and amortisation (EBITDA) to $14.8 million.

This was driven by the doubling of its active customers to 678,000, higher repeat use, a 6% increase in the average spend per active customer, and operating leverage. In respect to the latter, over the last 12 months the company’s fixed costs as a percentage of sales decreased from 11.6% to 7.5%.

A chat with management

I spoke to management following the release and CEO, Mark Coulter, appeared very pleased with half.

He pointed out that while the shift to online shopping during the pandemic has undoubtedly benefited the company, Temple & Webster was a high growth company before COVID and is expected to remain one post COVID. 

This is due to the tailwinds the company is experiencing from the structural shift to online shopping and favourable changes in demographics. In respect to the latter, tech-savvy millennials are now entering its core demographic.

In addition to this, Mr Coulter took me through the company’s private label business and the incredible amount of work that goes into it. Private label sales accounted for 25% of total sales during the half, up from 18% a year earlier. Management is now aiming to grow this to 30% of sales.

And finally, while customer acquisition costs are trending higher, this is being comfortably offset by the increasing revenue per user the company is generating thanks to a higher repeat customer rate.

Is the Temple & Webster share price in the buy zone?

According to a note out of Goldman Sachs, it believes the Temple & Webster share price is in the buy zone right now.

Although its half year result fell short of the broker’s revenue and earnings expectations, it has started the second half stronger than the broker was expecting.

It explained: “TPW’s 1H21 result was below our forecasts, largely driven by a higher cost base than our assumptions. This results in downgrades to our forecasts but, in our view, the investment case for TPW remains largely unchanged.”

Though, it has warned that uncertainty could make its shares volatile in the near term. It said: “We acknowledge there will be elevated uncertainty as to how TPW cycles strong comparative bases through calendar 2021. This could drive a higher level of volatility in its share price over the very-near term.”

Nevertheless, the broker remains positive on the investment opportunity here, commenting: “We remain attracted to the structural tailwind of online commerce penetration and note that TPW has a leading position within its category which itself has a significant room for further online commerce growth. This should deliver well above market revenue growth and solid operating leverage over our forecast period,” it added.

Goldman Sachs has a buy rating and $12.45 price target on its shares.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

James Mickleboro 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 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.

The post Where next for the Temple & Webster (ASX:TPW) share price? appeared first on The Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!