The Temple & Webster Group Ltd (ASX: TPW) share price could be a buy for a few different reasons.
For people that haven’t heard of Temple & Webster, it’s an Australian online retailer that sells a large array of furniture and homewares. Lots of those products are actually shipped straight from suppliers to customers. However, the company does have its own private label products as well.
But for multiple reasons, it could be a good business to own for the long-term:
Scalable
When looking at individual businesses, I like to find ideas that are able to steadily become more profitable as they get bigger. In other words, ones that can keep growing their profit margins.
Businesses that utilise a high level of technology are certainly ones to consider when thinking about potential rising margins.
The website is the key aspect of the Temple & Webster business. The website has already been created, so that element of fixed cost becomes a smaller percentage of revenue as it gets bigger, leading to rising margins.
I believe that in several years, Temple & Webster will become a much more profitable business.
Growing quickly
The scalability is attractive, but the ASX tech share is successfully growing revenue at a very fast pace.
In FY21 it achieved revenue growth of 85% to $$326.3 million and EBITDA (EBITDA explained) growth of 141% to $20.5 million.
Looking at the first few weeks of FY22, Temple & Webster achieved 49% revenue growth year on year to 27 August.
If Temple & Webster can continue to grow revenue at double digit for many years, combined with the rising profit margins, the bottom line should do well over time. The compound growth of revenue could be very strong.
Big goals
Temple & Webster isn’t looking to play it safe. The company wants to become the biggest retailer of furniture and homewares in Australia. It’s going to invest heavily to achieve it, including rolling out a number of impressive tools for customers, including visualising an item in their space.
I believe that Temple & Webster is a strong force to be reckoned with. Its business model and margins suggest a very compelling future in my opinion. The Temple & Webster share price may seem a bit expensive today, but if it keeps growing quickly I believe it will seem good value in the future.
