ASX growth shares may have the potential to deliver good returns over the coming years because of how quickly the underlying business is expanding.
It’s possible that some businesses can be overpriced for the growth that they are expected to create, so investors shouldn’t pay any price for a company.
A few of those possible business ideas could have a lot of growth potential for the long-term and are still priced attractively.
These are two to consider:
Adore Beauty Group Ltd (ASX: ABY)
Adore Beauty is an ASX e-commerce growth share. It operates a beauty website that sells a broad and diverse portfolio of approximately 10,800 products from 260 brands.
The business generated a lot of growth in FY21, with revenue increasing 48% to $179.3 million, gross profit growing 54% to $59.3 million and earnings before interest, tax, depreciation and amortisation (EBITDA) going up 53% to $7.6 million.
Management point to a number of customer-focused statistics that show the business’ progress. In FY21, it increased its number of active customers by 39% to 818,000. Returning customer growth was 64% year on year. Annual revenue per active customer increased 7% to $219, driven by customer retention and increasing average order value. Adore Beauty also noted it has “best in class” levels of customer satisfaction with a Google Review rating of 4.9 out of 5. These customers are profitable within the first year.
Adore Beauty believes that its continued strong returning customer rates and growth in new customers provides strong momentum to drive continued growth in FY22 and beyond. The ASX growth share said it’s well positioned to capture market share in its large and growing market, whilst benefiting from structural tailwinds.
It’s going to invest heavily in the shorter-term to continue its growth and then benefit from scale benefits in the future. The start of FY22 revenue saw an increase of 26% year on year.
The broker Morgan Stanley currently rates Adore Beauty as a buy, with a price target of $6. It believes it can generate strong growth in the coming years.
Temple & Webster Group Ltd (ASX: TPW)
This ASX growth share is another e-commerce business that is rapidly growing and plans for a lot more.
Temple & Webster has over 200,000 products for sale from hundreds from suppliers. It operates with a drop-shipping model where products are sent directly to customers by suppliers, which helps with faster delivery times and reduces the need to hold inventory, allowing for a larger product range. It’s a capital light model. Indeed, the working capital model is negative, with 74% of sales having no inventory risk.
The company also has private label range which is sourced by Temple & Webster from overseas suppliers. Private label sales increased from 19% of sales in FY20 to 26% in FY21. This comes with improved margins.
Management point to the fact that it’s already profitable and it has a large addressable market (worth $16 billion overall, including both online and offline). There is an accelerating rate of online adoption. In FY21, revenue rose 85% to $326.3 million and EBITDA soared 141% to $20.5 million. The balance sheet is debt free and it had $97.5 million of cash at the end of the 2021 financial year.
The ASX growth share is investing in a number of areas to improve the customer experience. For example, it is merging the online and offline experience through augmented reality. This is where Temple & Webster makes it possible to see a product in a shopper’s room. Management believe that removing barriers in the online shopping journey which will drive conversion and customer engagement.
In FY22 to 27 August 2021, revenue increased by 49% year on year. Temple & Webster is going to continue to invest heavily to grow its market position with an eventual goal of becoming the largest retailer for furniture and homewares in its home market.