The Temple & Webster Group Ltd (ASX: TPW) share price has dropped despite reporting good growth in the first quarter of FY21.
FY21 first quarter
The online-only furniture and home furnishings business announced at its AGM that in the financial year to date (YTD) from 1 July 2020 to 19 October 2020 it saw revenue grow by 138% compared to the prior corresponding period (PCP).
The first quarter of FY21 saw the company generate $8.6 million of EBITDA (click here to learn what EBITDA means
), which was more than the whole of FY20.
October’s revenue growth was still more than 100%, which management said was pleasing because it has entered into the peak trading months. The company also said that its contribution margins continue to be ahead of its 15% target.
One of the most important non-financial things is customer satisfaction. Its net promoter score of around 70% continues to be at record levels, and newer cohorts are performing better than historical comparisons.
Why the business is one to watch
Temple & Webster is one of the fastest growing businesses at the moment. The fact that it’s still more than doubling its revenue each month is really impressive.
Management are hopeful about the medium-term by the fact that millennials are now entering into the key furniture-buying age bracket of 35 to 65, so that’s promising for longer term earnings.
A growing range of product ranges will open up a wider addressable market to ensure it remains the best option for customers and this will help profit margins as it scales. A growing private label range will also help margins too.
It’s looking to innovate with the company building its 3D model library, which will be useful for shoppers. Other improvements for customers will be more delivery options such as ‘after hours’ and weekend delivery.
Temple & Webster is also looking to grow its trade and commercial division, which could help deliver growth outside of its main household sales channel.
It’s certainly not cheap, after falling 14% (at the time of writing) the Temple & Webster share price is still valued at 53 times the estimated earnings for the 2023 financial year according to CommSec. If it keeps growing revenue quickly then it could be a decent option today. However, there are other ASX growth shares that I think are trading at more reasonable value like Pushpay Holdings Ltd (ASX: PPH).
