2 ASX growth shares to buy in May 2021

Temple & Webster Group Ltd (ASX:TPW) and this other ASX growth share could be leading stocks to focus on in May 2021.

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There are a handful of ASX growth shares that could be worth focusing on this month as they look to continue to scale their businesses.

Growth shares have the potential to outperform the market because of the compounding of the revenue and profit at a faster pace.

These two ASX growth shares could be ones to watch for the long-term:

Temple & Webster Group Ltd (ASX: TPW)

This furniture and homewares business is one of the companies that have adapted and benefited the most from the change of customer shopping preferences over the last 12 or so months. That’s why the Temple & Webster share price is up almost 200% during the last year.

The initial COVID-19 retail frenzy was one thing, but customers seem to be here to stay for the e-commerce company.

Temple & Webster’s FY21 third quarter saw revenue rise 112% and active customers reached around 750,000. Even April 2021, which was competing against the huge April 2020 month last year, saw revenue growth of more than 20%.

Management believe that this trading shows that COVID-19 has permanently accelerated the online adoption in its sector. Over 2020, the company thinks that the percentage of furniture and homewares bought online almost doubled from 5% in 2019 to around 9% in 2020.

The ASX growth share is going to pursue continuing significant online market growth and longer-term returns by investing heavily in marketing, its operational capabilities, expanding its private label and launching new products.

However, due to this investment, operating profit margins will remain low for the next few years. But after that, it thinks it will achieve higher levels of profitability because of greater scale benefits.

Kogan.com Ltd (ASX: KGN)

Kogan is another ASX growth share that has significantly scaled during the last year because of the booming e-commerce sales.

It has impressed with higher profit margins, growth of active customers and an expanding product range.

Kogan is continuing its long-term strategy of investing in technology, marketing, logistics capability, platform improvements and Kogan First membership benefits to lay the foundation for future growth and provide ongoing improvements in the customer experience.

However, that growth investment as well as inventory problems led to adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) falling by more than 24% in the third quarter of FY21.

But, the Kogan.com business continues to grow. Excluding Mighty Ape, gross sales went up 32% and revenue rose 41%.

Looking at the main revenue segments, the ASX growth share saw exclusive brands revenue rise 63.9% to $88 million, third party brands revenue grow 13.6% to $60.1 million, Kogan Marketplace revenue rise 104% to $5.1 million and Kogan Mobile revenue rise 23.8% to $3.5 million.

The Kogan board is confident about the future with growth of its active customer base, its investments in key strategic initiatives and a strong level of in-demand inventory heading into key trading periods. It noted there has been price inflation through global supply chains.

According to Commsec, the Kogan share price is valued at 22x FY22’s estimated earnings.

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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 and Temple & Webster Group Ltd. The Motley Fool Australia has recommended Kogan.com ltd and Temple & Webster Group 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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