What to do with Redbubble (ASX:RBL) shares: fundie

The artwork merchandise market was caned in April, dropping more than 18%. So what do the professionals think about its prospects?

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A fund manager has told investors to shirk off the recent price plunge for Redbubble Ltd (ASX: RBL) shares.

Shareholders have nervously watched the art merchandise marketplace’s price go from $5.95 at the start of the year to now $4.05 – a 32% drop in just 4 months.

During the month of April alone, the stock price dived more than 18%

Ouch.

In a video to clients, Frazis Capital portfolio manager Michael Frazis said the recent quarterly results were “solid” and “in line” with expectations.

“Redbubble is a COVID beneficiary. Those companies are going to be all under pressure, across the board.”

The company is “still executing” and growing, according to Frazis. 

Redbubble also has the advantage of operating a two-sided marketplace, where revenue comes from both the merchant and end customer.

For the quarter ending 31 March, Redbubble’s marketplace revenue increased 54% to $103 million and gross profit was also up 55%.

But the figure that had investors panicked was that its EBITDA/marketplace revenue margin fell to 2.1% for the quarter, compared to 13.8% in the first half. 

According to colleague James Mickleboro, that nosedive was never explained.

Are you an investor or trader?

Frazis’ fund bought into Redbubble at around $3. It has been as high as $7.35 in the past year.

Investors should commit to such growth businesses for the long term, according to Frazis.

“If you’re more a fast, [short-]term follow-the-money trader kind of person, maybe now’s the time you just flick all of those and go into travel stocks and airlines,” he said.

“That’s not what we do. We will stay in this one for the long term.”

Frazis did remind viewers that Redbubble only takes up 2.5% of his fund, so admitted holding is easier said than done for individuals who have a larger stake.

While the share price sunk after the quarterly results last month due to the shrinking margins, other brokers seem to agree with Frazis.

Morgans downgraded its rating from “buy” to “hold”, but still has a price target of $4.88, which is higher than the current level.

RBC Capital kept the faith, retaining a “buy” rating. But it did downgrade the price target to $5.60.

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Motley Fool contributor Tony Yoo owns shares of REDBUBBLE FPO. The Motley Fool Australia has no position in any of the stocks mentioned. 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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