I think these 2 ASX growth shares have been heavily oversold. I'd buy them in April

I believe these former COVID winners could bounce back strongly.

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Key points

  • Higher interest rates and the end of lockdown e-commerce demand have hurt some former high-flyers
  • I think Temple & Webster is a buy as it improves the online shopping experience and achieves scale benefits
  • Adore Beauty has been smashed, but continues to see returning customer numbers grow, while still achieving positive EBITDA

The ASX share market has gone through some seismic shifts over the last three years. I think this is a great time to be looking at fallen ASX growth shares as recovery buys.

It's understandable why some e-commerce players have fallen substantially over two years. COVID lockdowns are over, life is essentially back to normal and bricks and mortar shops are open.

However, I believe that the long-term trend of online shopping growth will continue from this level of 'new normal'.

Younger cohorts of shoppers are seemingly as digitally savvy as ever, so I think we'll see a larger percentage of the population buy more things online as time goes on. Plus, I think Australia's growing population is a useful tailwind for businesses because the potential customer base is increasing.

I think the higher interest rates and inflation situation have made the following two ASX growth shares very appealing.

Adore Beauty Group Ltd (ASX: ABY)

Adore Beauty describes itself as an "integrated content, marketing and e-commerce retail platform that partners with a broad and diverse portfolio of more than 270 brands and over 12,000 products."

The Adore Beauty share price has fallen by around 80% over the past two years.

It seemed clear that the ASX growth share wasn't going to be able to keep sustaining its COVID-period numbers once the lockdowns ended. The FY23 half-year result showed a fall in revenue of 17% to $93.6 million.

But, in that same result, returning customers grew by 10% to 481,000 and they contributed 78% of all revenue.

Despite the fall in revenue and inflationary pressures, the company still managed to achieve a positive earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 0.4% and grow the cash balance by $0.3 million to $30.1 million.

I think the company's initiatives like its app and owned-marketing channels (such as podcasts) can help grow the margins of the business.

It's also growing its portfolio of own-brand products. Adore Beauty currently has two owned brands – Viviology and AB Lab. The company says that "new brands and products support customer retention and acquisition."

Once it's not cycling against elevated COVID sales, I think it will start showing growth again.

Temple & Webster Group Ltd (ASX: TPW)

Temple & Webster describes itself as Australia's largest pure-play online retailer of furniture and homewares. It sells over 200,000 products, though a lot of those are from hundreds of suppliers and are directly shipped to customers by those suppliers.

The ASX growth share does have its own private label range, sourced from overseas suppliers.

While it was cycling against a comparative period of lockdown demand, Temple & Webster was able to generate $207.1 million of revenue and an EBITDA margin of 3.5% in the FY23 first half.

The Temple & Webster share price is down over 60% in the last two years.

However, I think the company has a very promising future. It's investing to offer online shoppers very useful tools like augmented reality, so households can see an item in their space. It's also developing an AI interior design service.

The business has big plans to expand with home improvement items (like painting, plumbing, flooring) with its Big Build website business, as well as expanding its exposure to commercial customers.

The company makes the point that the UK and the US have much higher levels of online shopping adoption than Australia. But Australia is following a similar trend, so there could be a natural boost for the ASX growth share's customer numbers in future years simply by higher levels of e-commerce adoption for furniture shopping.

It's expecting to earn higher profit margins in the future thanks to scale benefits, which I think will helpfully boost the Temple & Webster share price.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Temple & Webster Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has recommended Adore Beauty Group. The Motley Fool Australia has recommended Adore Beauty Group and Temple & Webster Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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