The Temple & Webster Group Ltd (ASX: TPW) share price has come storming back today after seeing falls of 14.2% over the previous 4 days’ trading. The company had been part of a recent sell off across e-commerce retailers more broadly. Other online shopping companies such as Kogan.com Ltd (ASX: KGN), Redbubble Ltd (ASX: RBL), and Marley Spoon AG (ASX: MMM) had also seen market losses. However, at the time of writing, the Temple & Webster share price has surged by 11.51% to $10.95.
What was troubling the Temple & Webster share price?
On Friday 23 October, fund managers decried the market valuations of many of the online shopping and delivery companies. Chris Tynan, an investment analyst at DNR Capital commented:
The mania over e-commerce feels similar to infant formula and vitamins in 2015… Consumer behaviour has been squeezed online and some of it will stick. If you were ever able to float an internet consumer business then it’s now.
Without commenting on individual stocks, there will be some great businesses that emerge from the hysteria, but many will struggle in a normalised consumer environment.
As noted, consumers have been squeezed into the online trading space and may not stay there once the economy normalises. However, investors have been piling back into Temple & Webster shares and other e-commerce shares today.
Reasons for optimism
Temple & Webster made more profit in Q1FY21, due to a furniture and homewares boom, than it did throughout FY20. The company achieved $8.6 million in earnings before interest, tax, depreciation and amortisation (EBITDA), compared with $8.5 million in FY20. In addition, sales were up by 138%. In October thus far, the company reported that sales have more than doubled when compared with last year’s figure.
RBC Capital Markets analyst, Tim Piper, has said.
As the market leader in online-based furniture and homewares in Australia, TPW has benefited from the accelerating shift to online and we expect the step-up in penetration to remain in a sizeable proportion.
We think TPW can also continue to grow market share, which should compound the growth expected in the underlying market.
The Temple & Webster share price has continued to see volatility. There are clearly conflicting views over valuations in the e-commerce space more broadly, which has likely contributed to this volatility. In addition, the AFR believes fund managers have also been taking profits.
However, the company is still reporting total sales performance as rocketing, even with national lockdowns largely over. Although this bodes well for the Temple & Webster share price, it remains to be seen if it will endure when the economy normalises.