The Temple & Webster Group Ltd (ASX: TPW) share price is going bananas right now after good broker news.
What’s going on with the Temple & Webster share price?
Temple & Webster shares are up almost 10% right now after broker Morgan Stanley initiated coverage of the online e-commerce business.
According to reporting by the Australian Financial Review, Temple & Webster has been rated as overweight/a buy because of the growth of online shopping, market share gains and profit margin growth.
The broker noted that the market seems to think that Temple & Webster can’t maintain its high level of growth over the next year or two. Morgan Stanley also pointed to market doubt about whether the profit margins can be strong as the business keeps re-investing for growth. There’s also a worry that investors may cycle out of high-growth shares like Temple & Webster, and into ‘value shares’ instead.
The AFR quoted the broker, which said: “We view the recent TPW weakness as an opportunity to buy a very early growth story with a strong track record on execution.”
Broker expectations
Over the next 12 months, Morgan Stanley thinks the Temple & Webster share price could rise to $14, with potential upside on top of that.
According to Morgan Stanley, Temple & Webster is valued at 50 times the estimated earnings for the 2022 financial year, at the time of writing.
My take on the Temple & Webster share price
I think there are two ways to look at Temple & Webster.
There’s the bullish case where you believe that Temple & Webster can keep growing and gaining market share. Its growing scale would allow its profits to grow more and more. As the ASX share gets bigger, it can invest more into its operations to further cement its market share and gain new customers. If revenue keeps growing strongly for the long term then today’s price could be cheap.
But there’s also a bear case for the Temple & Webster share price. It’s likely to keep growing, but perhaps the valuation could be too far ahead of itself. There are businesses with high levels of online sales, where the online sales are growing quickly, yet the share price is much cheaper. For example, the Adairs Ltd (ASX: ADH) share price is a lot cheaper and it sells the same sort of things. Even the Kogan.com Ltd (ASX: KGN) share price looks more affordable at the moment.
I do think that Temple & Webster is a long term opportunity, but there will probably be plenty more volatility to come.
