ASX growth shares have taken a beating over the last year and a half. But I think there are opportunities to pounce on before a possible recovery.
Just because something has gone down doesn't automatically mean it's going to rise again. But the two businesses I'm going to talk about have seen significant falls, even though their futures looks promising.
I think their current valuations look really good for the long term.
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SiteMinder Ltd (ASX: SDR)
SiteMinder describes itself as a hotel technology provider. It says it's the world's number one channel manager and hotel booking software provider.
Over the past year, the SiteMinder share price has dropped by more than 30%, making it much better value in my opinion. This decline has happened even though travel demand has soared.
The quarterly update the business announced last week was very promising, in my opinion. Revenue rose 28.7% year over year to $37.3 million, while annualised recurring revenue (ARR) increased 28.5% year over year to $150.3 million.
It also said that net subscriber additions accelerated, as did the uptake of transaction products.
The ASX growth share is still seeing underlying free cash outflows ($8.5 million for the quarter), but it's quickly improving. It had available liquidity, including undrawn debt, of $86.7 million at the end of the quarter.
This is the type of software business where its subscription revenue has a high gross profit margin, meaning that new revenue is rapidly boosting the bottom line. The company is expecting to be free cash flow neutral by the fourth quarter of FY24, on a quarterly basis.
Temple & Webster Group Ltd (ASX: TPW)
The former COVID darling has fallen heavily. The Temple & Webster share price is down by around 25% over the past year alone.
I can understand why the market is worried in the short term – higher interest rates could hurt demand for furniture and homewares from the online retailer. Higher interest rates also may be a likely factor in pulling down the company's valuation. As well, COVID lockdowns are over and shops are trading without restrictions so consumers may be less likely to buy items online compared to FY21.
However, I think the long term is promising for this ASX growth share.
The company's active customer base is now substantially larger than it was pre-COVID — and those customers are coming back to Temple & Webster regularly. The company said in its FY23 half-year result presentation that 57% of orders are now from repeat customers. Temple & Webster said this will increase returns on marketing spending.
HY23 revenue per active customer increased 7%, driven by both average order value and repeat orders.
The business is seeing growth with both its trade and commercial division, as well as its home improvement products. Both of these market segments are worth billions, which is a larger opportunity for the business.
Management expects it will be able to achieve much higher profit margins in the coming years as it scales. The company has also noted Australia's furniture and homewares market "significantly lags the online penetration of other countries such as the US and UK", suggesting this can help the company's revenue as more people shop online more often.
As this business grows revenue in future years, I think it can become much more profitable and this could excite investors.
