3 reasons why the Temple & Webster (ASX:TPW) share price could be a buy

There are a number of compelling reasons why the Temple & Webster Group Ltd (ASX:TPW) share price could be worth looking at.

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The Temple & Webster Group Ltd (ASX: TPW) share price could be a compelling idea for a few different reasons.

The online furniture and homewares business has seen its share price fall by around 17% since 29 April 2021.

These are some of the reasons why the e-commerce business could be an interesting opportunity:

Continued growth

Businesses that are delivering actual revenue growth are the ones that can grow net profit and gives a better chance of producing shareholder returns.

Temple & Webster delivered a lot of growth in 2020 but that growth has continued into 2021.

In the third quarter of FY21, being the three months to 31 March 2021, it saw revenue growth of 112%. Active customers increased to around 750,000 at the end of the third quarter.

April 2021 revenue was also up more than 20% compared to the prior corresponding period of April 2020 which was the fastest growing month last year during the COVID-19 lockdowns. It hasn’t seen a decline in sales like other businesses.

The COVID-19 cohorts continue to perform better than shoppers that have been around for longer.

Temple & Webster believes that trading suggests COVID-19 has permanently accelerated online adoption in the Australian furniture and homewares market.

The ASX share estimates more than 20% of furniture and homewares was bought online in the US during 2020, and the company believes Australia is following the same trajectory.

Temple & Webster has estimated that in 2020, around 9% of Australian furniture and homewares were bought online, an almost doubling of the 5% bought in 2019.

Management believes that online penetration in both markets is expected to continue to increase significantly.

Investing for more growth

The ASX share plans to invest for growth and improve its online market leadership position. The company believes there’s the potential for significant online market growth and longer-term returns.

It’s planning to build strong brand awareness to achieve national brand status within the next three years by investing in mainstream media to drive both first time and repeat customers. The company plans to use tactical pricing and promotions to increase conversion.

Another part of the plan is that it wants to strengthen its customer experience through enhanced technology, data and personalisation and delivery experience. It’s going to invest into 3D and artificial intelligence capabilities to make the customer shopping journey easier.

Temple & Webster wants to further differentiate its range through new category additions, private label expansion, new product development and launching exclusive ranges with its key drop ship suppliers.

The final point that the company is focused on growing its commercial sales and operational teams to capitalise on returning demand in business to business sales.

During this period of heavy investing for growth, it’s going to maintain its earnings before interest, tax, depreciation and amortisation (EBITDA) margin level at between 2% to 4%.

Over the longer-term it’s expecting to generate higher profit margins than offline competitors with scale benefits.

The Temple & Webster CEO Mark Coulter said:

You only need to look at the US to see how the e-commerce market is playing out, and why we remain bullish about the shift from offline to online. We are at the start of this once in a generation shift and now is the time to put our foot down to secure market leadership and ensure we are the brand for the next generation of furniture shopper.

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