I think there are some high-quality ASX tech shares that are on sale and worth buying in February 2022.
This year has seen a major sell-off of many of the most promising technology names. An asset isn’t necessarily a buy just because it has fallen, but I believe these two ideas, which have seen a big decline, are now very attractive ideas:
Adore Beauty Group Ltd (ASX: ABY)
The Adore Beauty share price is $2.80 at the time of writing, meaning it has fallen 31% since the start of the year.
What does the business do? It’s an e-commerce business that sells thousands of products from hundreds of brands. My household is one of their customers, so I can attest to the strength of the product range and service offering.
It’s resonating with a lot of Aussie customers. At the end of September 2021, the business had reached 874,000 active customers – which was a 24% increase year on year.
Beauty products are one of those things that people can buy year after year. So it’s possible for a business like Adore Beauty to win long-term loyalty from customers. That’s why it works hard at engagement with things like a loyalty program, podcasts and so on.
Once those customers are returning customers, the ASX tech share can aim to build the annual revenue per customer.
The power of compounding can help Adore Beauty’s revenue grow into a large number in the coming years. Scale can help profit margins with operating leverage. In the first quarter of FY22, revenue grew another 25% to $63.8 million.
I think the shift to online shopping from physical stores is a long-term tailwind for Adore Beauty, and others.
Temple & Webster Group Ltd (ASX: TPW)
This business is another of Australia’s leading e-commerce businesses. Temple & Webster sells over 200,000 furniture and homewares products from hundreds of suppliers. The Temple & Webster share price has fallen 23.5% in 2022.
It runs a drop-shipping model where products are sent directly to customers by suppliers, enabling fast delivery times, reducing the need for holding inventory and allows for a larger product range. This method of operating gives the company a negative working capital model.
However, the company also has a private label range which is sourced directly by Temple & Webster from overseas suppliers. This comes with a higher margin and provides supply chain diversity. Around a quarter of sales are private label.
The ASX tech share is also growing customers and revenue very quickly. The FY22 first-half revenue jumped 46% year on year to $235.4 million, with active customers increasing 34% to 906,000. Revenue per active customer rose 10%. Revenue grew by another 26% in the second half to 6 February 2022.
One of the most exciting things about the company recently is the expansion into ‘home improvement’. Things like paint, flooring, plumbing, tools and so on can be bought on the company’s website. This significantly increases its addressable market.
If it keeps taking market share, converting more people to online shopping and grows its operating leverage then the business will be well placed to be very profitable in the coming years.
Final thoughts on these ASX tech shares
I think both of these businesses have very compelling business models which could see them be strong performers over the coming years, particularly from the starting point of today’s lower valuations. If their scale and profit margins keep growing at a good pace, they could eventually be tomorrow’s blue chips.
