The Redbubble Ltd (ASX: RBL) share price has fallen by around 20% over the last three months. Does that mean it’s now a bargain?
The Redbubble share price hype has been popped
Redbubble shares had been one of the best performers after the COVID-19 crash, up to the latter stages of January 2021. But that’s no longer the case.
Not too long ago, there was concern among some investors about the potential for higher inflation, leading to earlier-than-expected interest rate hikes. There was also the concern that e-commerce shares would start to lose momentum.
Redbubble is definitely one of those high-flying online retail ASX shares. It sells various items with designs on them by artists, such as apparel, stationery, housewares, bags, wall art and so on.
Through the marketplaces of Redbubble and TeePublic (another business Redbubble owns), artists can profit from their creativity.
Is the fall in the Redbubble share price justified?
It could be a logical argument to say that growth rates for e-commerce businesses is going to slow down over the next 12 months. The law of big numbers means it harder to keep growing at a high rate as the numbers get bigger and bigger. E-commerce businesses may also see a decline in growth as physical stores open up again.
However, Redbubble is still showing a high level of growth, for now.
In January 2021, marketplace revenue (paid) grew by 66% (or 82% on a constant currency basis).
Redbubble CEO Michael Ilczynski said: “The strategic priority for the group now is to ensure we extend the market leadership we have established. We intend to invest in both the artist and customer experiences, to improve loyalty and retention and to ensure long-term growth.”
Is it a bargain?
Redbubble is priced for growth. In the HY21 result, it generated $42 million of EBIT (EBIT explained), compared to the market capitalisation of $1.5 billion. Operating cashflow was $80 million, up from $41 million last year.
If Redbubble can keep growing strongly, whilst generating good cashflow, it could be one to really watch. The growing margins are really attractive for future profit growth.
I’d personally be happy to buy for the long-term at today’s Redbubble share price, but the short-term could be volatile and even negative if short term growth isn’t as high as expected.
