There are some ASX growth shares that are being sold off, but could be worth thinking about because of their long-term growth potential.
The S&P/ASX 200 Index (ASX: XJO) dropped by 2.4% on Friday, but some businesses (which are generating high levels of growth) fell much harder than that.
Kogan.com Ltd (ASX: KGN)
The Kogan.com share price fell 10.4% on Friday to $14.
Kogan.com reported its FY21 half-year result to investors which included a lot of growth metrics.
It revealed that the gross sales went up 97.4% to $638.2 million, gross profit went up 126.2% to $112.9 million, adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) grew 184.4% to $51.7 million and adjusted net profit after tax (NPAT) increased by 250.2% to $36.5 million.
Reported NPAT came in at $23.6 million, with adjusted earnings per share (EPS) of $0.35, up 211.7% to $0.35. The Kogan board decided to increase the dividend by 113.3% to $0.16 per share.
The number of active customers continued to climb for the ASX growth share, it went up 76.8% to 3 million. It also had 719,000 active customers at Mighty Ape, which is a newly-acquired New Zealand e-commerce business.
Kogan.com continues to see growth across the business, particularly with its marketplace business which saw gross sales growth of 194.3%. This growth doesn’t require a corresponding increase of investment in inventory and helps margins.
One thing that Kogan wanted to point out to investors was its improving operating leverage. Compared to the prior corresponding period, the gross margin improved 460 basis points to 27.3% and the delivered margin (after all logistics costs) grew 510 basis points to 22.9%. Despite the increasing the percentage of market costs to revenue from 4% last year to 7.4% in this half-year, the EBITDA margin grew by 180 basis points to 9.4%.
According to Commsec, the Kogan.com share price is trading at 19x FY23’s estimated earnings.
Redbubble Ltd (ASX: RBL)
Redbubble is an e-commerce business. It sells artist-designed products on the websites that it owns called Redbubble.com and TeePublic.com.
The ASX growth share sells various everyday products like apparel, stationery, housewares, bags, wall art and so on.
Redbubble is another business that is seeing strengthening operating leverage as it gets bigger. In the FY21 half-year result, the gross profit margin increased by 4.1 percentage points to 40.8%.
The marketplace revenue rose by 96% to $353 million, the gross profit went up 118% to $144 million and operating cashflow grew 95% to $80 million. It generated $42 million of earnings before interest and tax (EBIT) in that half-year result.
This growth was achieved despite mask demand falling to 7% of the overall mix for the second quarter and higher shipping charges resulting in lower margins for the month of December. Foreign currency also acted as a drag on the earnings.
The ASX growth share revealed that healthy demand continued into January, with marketplace revenue growth of 66% (or 82% in constant currency terms).
The CEO of Redbubble, Michael Ilczynski, said at the time of the half-year result: “The strategic priority for the group now is to ensure we extend the market leadership we have established. We intend to invest in both the artist and customer experiences, to improve loyalty and retention and to ensure long-term growth.”
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Kogan.com ltd. The Motley Fool Australia has recommended Kogan.com ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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