The Temple & Webster Group Ltd (ASX: TPW) share price could see a big change this week with the upcoming FY22 half-year result.
For people that don’t know, this ASX share is an e-commerce business. It sells a wide range of furniture and homewares.
Temple & Webster’s incoming result
The online retail business was one of the star performers during the lockdown-hit year of 2020. There was a large shift of shopping habits, to online purchasing.
It’s fast becoming one of the major players in the home product space. It’s rapidly growing, but the Temple & Webster share price has been very volatile over the last year and a half. No-one can know what share prices are going to do, and it doesn’t matter what happens in the short-term, but I’d be surprised if there isn’t a sizeable reaction one way or another.
There are a few different factors I’m going to keep my eye on:
Revenue growth
A key thing to keep an eye on is the company’s revenue growth. The faster that the business can grow, the quicker it will be able to achieve a very strong market position. Larger scale will give the business a bigger marketing budget, the ability to invest in even better technology and stronger economics.
A lot of investors are focused on how quickly the company is growing. At the company’s annual general meeting, FY22 revenue had grown by 56% to 15 October 2021. It will be interesting to see how growth went after the lockdowns ended and also see a sales update for the second half of FY22.
The supply chain
Temple & Webster sells a huge amount of physical products. Its business model does mean that a significant amount of it is shipped by suppliers straight to customers. The ASX share also has a private label range (which comes with improved margins, stock assurance and so on).
There has been a huge amount of reporting about supply chain impacts and cost increases. If there’s a material impact on Temple & Webster or the suppliers, then it could impact the Temple & Webster share price.
Overseas growth or acquisition comments
I’m not expecting the ASX share to make any announcements this month. However, I think at some point it’s quite likely the business will start expanding overseas or announce an acquisition which could further increase its total addressable market.
Expanding beyond Australia’s shores could seriously increase its long-term potential.
Operating leverage
A key factor for future profitability will be how growth can increase profit margins. At the moment, Temple & Webster is heavily investing for growth, so EBITDA margins will stay lower. Remember, future profit expectations are probably a big driver of the Temple & Webster share price.
However, it will be interesting to see if the Temple & Webster fixed cost expense percentage of revenue continues to fall. That would imply that the underlying profitability – excluding the growth spending – continues to grow.
Final thoughts on the Temple & Webster share price
I think this ASX share is one of the most promising ASX growth shares.
The Temple & Webster share price has fallen 25% since the start of the year. If this result can reinvigorate investor sentiment then it could rise again. But, over the long-term I think it has the potential to do very well. Particularly at today’s price of around $8.
