The Redbubble Ltd (ASX: RBL) share price looks like really good value to me, so I think it’s worth looking at.
Why does the Redbubble share price look so good?
Redbubble shares have done very well over the last year, rising by 1,026%. It has been one of the biggest ASX beneficiaries from the big change to online shopping. It offers a global marketplace for artist-designed products. Phone cases, wall art, stationery, bags and so on. Redbubble is actually expanding its category offerings to customers over time.
But investor excitement about Redbubble has been cooling in recent weeks – it’s down 22% since 25 January 2021. However, Redbubble continues to generate high levels of growth and I think it’s reasonably valued for how much cashflow it’s making.
In the first six months of FY21, it made $144 million of gross profit (up 118%), $42 million of EBIT (up $44 million) and $80 million of operating cashflow. In the whole of FY20, it made gross profit of $134 million (up 42%), $5.1 million of EBITDA (EBITDA explained) and free cash inflow of $38 million. That’s a big improvement.
Is growth slowing?
Redbubble has said that its growth rate at the start of the second half of FY21 was slower. But it was still really good in my opinion. January marketplace revenue (paid) grew by 66%, or 82% in constant currency terms.
I think that Redbubble’s market cap of $1.5 billion, is not an excessive price at all. Remember that Redbubble generated $80 million of operating cashflow in just six months.
Redbubble’s growth has certainly been volatile over the last couple of years, but it’s heavily focused on maintaining its market leadership. It’s going to keep investing in initiatives for both the customer and artist to improve retention rates and ensure long-term growth.
Redbubble is attractive due to multiple factors
It’s one of those types of businesses that benefits from network effects. Meaning, the more artists and designs it can attract, the more potential customers that could shop on the website, which could attract more artists and so on.
Online ASX retail shares really benefit from scale. It has already designed and built the e-commerce platform, so more activity just boosts operating profit more quickly. We can see that with Redbubble’s rising margins. Not only did EBITDA and EBIT rise significantly (because it’s now making profit), but other statistics also improved nicely, such as the gross profit margin which went up from 36.7% to 40.8%.
The company is generating high levels of cashflow, which will help with growth and shareholder returns (such as dividends) over the longer term.
I’m not sure how large Redbubble can become. And it might be unhelpful to forecast too much growth. But at the current Redbubble share price, I think it’s very nicely valued for a long term investment over the next five to ten years. It’s one of the ASX growth shares that I really like right now.