I think that some ASX shares are poised to generate huge growth in FY21 after displaying large growth in the first month or two of the new financial year.
Really low interest rates are helping boost business valuations, but they may still be opportunities.
Who knows how long they can keep it up? But I think these ASX shares are definitely worth watching:
JB Hi-Fi Limited (ASX: JBH)
JB Hi-Fi had a strong FY20 with total sales growth of 11.6% and underlying earnings per share (EPS) rising by 33.2% as lots of people spent more time working, learning and getting entertainment at home. The final dividend was impressive too, rising by 76.5% to 90 cents per share.
July 2020 sales, being the first month of FY21, were particularly strong. Total sales growth for JB Hi-Fi Australia was 42.1%. Total sales growth for JB Hi-Fi New Zealand was 9.1%. The Good Guys saw total sales growth of 40.4%.
It will be interesting to see if that level of growth can continue for the rest of FY21. Sales may have been impacted in Melbourne due to COVID-19 restrictions. Government stimulus is going to reduce over the next two quarters. This could also make things tricky for retailers.
The ASX share has continually impressed me over the years and FY21 could be another strong year, particularly if its FY21 first half result is strong enough to carry the full year result.
At the current JB Hi-Fi share price, it's trading at 16x FY21's estimated earnings.
Nick Scali Limited (ASX: NCK)
Nick Scali is another business that you'd assume wouldn't do that well in a recession, but it's showing astonishing growth.
The ASX share revealed July trading was very elevated with written order sales growing by 70% compared to the prior corresponding period. That growth was similar to the growth in May and June.
Typically, about two thirds of Nick Scali products are made to order with a typical delivery lead time of 9 to 13 weeks. The company said these orders will be delivered in the first quarter and contribute to FY21 revenue.
FY21 first half net profit is expected to be up by at least 50% to 60%. That would be astonishing in the current environment. Nick Scali hasn't withdrawn that guidance.
As a useful bonus, Nick Scali has a grossed-up dividend yield of 8%.
Temple & Webster Group Ltd (ASX: TPW)
This has been one of the hottest ASX shares since the COVID-19 crash. Since 23 March 2020, the Temple & Webster share price has risen by 710%.
It was growing quite well before COVID-19. But the shift to e-commerce has really accelerated things. In FY20 it grew revenue by 74%, second half revenue rose 96% and fourth quarter revenue soared 130%.
Active customers rose 77% to 480,000 and earnings before interest, tax, depreciation and amortisation (EBITDA) jumped 467% to $8.5 million.
It was the trading update for the first two months of FY21 that was particularly eye-opening. Revenue was up by 161% and it generated EBITDA of around $6 million – more than two thirds of FY20's EBITDA.
The ASX share is in a strong financial position. In its announcement at the end of August 2020 the company said that it had $81 million of cash and no debt. It's cashflow positive, so its balance sheet seems quite safe.
At the current Temple & Webster share price it's trading at 61x FY22's estimated earnings.
Foolish takeaway
Each of these ASX shares have very interesting growth prospects over FY21. I've been pleasantly surprised by JB Hi-Fi and Nick Scali before, so it may be unwise to write them off. Of the three opportunities I'm probably most attracted to Temple & Webster because it's growing so fast, becoming more profitable and there is an undeniable shift to online shopping. It could be one to watch for years to come.
