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Is the Redbubble (ASX:RBL) share price on a path to $10.75?

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The Redbubble Ltd (ASX: RBL) share price has been an exceptional performer in 2020.

Since the start of the year the ecommerce company’s shares have stormed a massive 288% higher.

Where next for the Redbubble share price?

Despite its incredible gains this year, one leading broker believes the Redbubble share price could still be going a lot higher from here.

According to a note out of Goldman Sachs, its analysts have a buy rating and $5.20 price target on the company’s shares. This implies potential upside of 23% over the next 12 months.

What did Goldman Sachs say?

Goldman Sachs likes Redbubble due to the large market opportunity it has thanks to its operations sprawling across a number of product categories.

It explained: “To give a sense of the potential market opportunity for RBL we focus on the online apparel and homewares & home furnishings categories. […] these categories were a US$163bn market in RBL’s core geographies in 2019 (representing a 14% 2010-2019 growth CAGR), and this is before the large acceleration in eCommerce penetration experienced in 2020. Worldwide, these categories were a US$381bn market in 2019.”

Despite Redbubble’s strong growth in FY 2020, it has barely penetrated this market, which is growing quickly.

Goldman commented: “To give some context to the size of RBL, it generated A$474mn in gross transaction value in FY20 (US$318mn), implying less than 0.2% penetration of these categories alone in core geographies. Our Global Internet team forecast global e-commerce to grow at 16.8% CAGR from 2019 to 2024. Applying this overall growth rate to apparel and homewares & home furnishings in RBL’s key markets implies an addressable market of US$354bn in 2024.”

Can the Redbubble share price go even higher?

Another company Goldman Sachs is very positive on is Temple & Webster Group Ltd (ASX: TPW).

In fact, it is more positive on the online homewares and furniture retailer due to its belief that it is capable of growing at an even stronger rate in the coming years. More on that here.

However, the broker has suggested that Redbubble’s shares could be worth upwards of $10.75 if it can increase its sales growth rate to a similar level.

It explained: “TPW has a materially more expensive rating reflecting, in our view, its more consistent execution track record as discussed earlier. If RBL were to achieve a revenue CAGR over our 10yr DCF horizon similar to that of TPW (which is 21% vs. 11% for RBL), our DCF value for RBL would increase from A$4.75 to A$10.75 (assuming no change to our EBITDA margin forecasts).”

“Given there is structurally no reason why we believe RBL’s medium-to-long-term growth trajectory should be lower than TPW’s, this would suggest there is arguably more option value in our target price for RBL relative to TPW, but we emphasise that consistency in execution remains key to close this hypothetical discount,” it concluded.

This could make it well worth keeping a close eye on Redbubble’s progress in the coming quarters.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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