Is it too late to invest in Temple & Webster (ASX:TPW) shares?

A man eases back onto his sofa, happy with the relaxed vibe from his furniture.

A man eases back onto his sofa, happy with the relaxed vibe from his furniture.A man eases back onto his sofa, happy with the relaxed vibe from his furniture.

The Temple & Webster Group Ltd (ASX: TPW) share price has gone up by around 250% over the past two years, making it among the stronger performers on the ASX during that time.

This business is one of the largest e-commerce players in the homewares and furniture space. It is currently benefiting from a number of tailwinds.

Those tailwinds include: the ongoing adoption of online shopping due to structural and demographic shifts, an acceleration of trends due to COVID-19, an increase in discretionary income due to travel restrictions and strong housing market growth.

High growth of revenue

It has been two years of very strong revenue growth for Temple & Webster. In the six months to 30 June 2020 it experienced revenue growth of 96%, with FY20 fourth quarter revenue growth of 130%.

FY21 saw further high levels of growth, with revenue increasing 85% to $326.3 million.

Finally, the company saw continuing elevated levels of growth in FY22 to 15 October 2021, which showed revenue growth of 56% after long lockdowns for both Sydney and Melbourne.

After all that revenue growth and the large rise of the Temple & Webster share price, is too late to invest in shares?

Temple & Webster share price drops

Since the start of the 2022 calendar year, the Temple & Webster share price has dropped around 8%. From the end of August 2021 to now, it has seen a drop of around 33%.

Indeed, right now the shares are at the lowest point in the past six months.

A few different brokers currently think that the online retailer is a buy.

Credit Suisse and Morgan Stanley currently rate it as a buy, with a price target of $15.89 and $16 respectively, suggesting a potential upside this year of around 60%.

UBS rates the e-commerce stock as a buy as well, though the Temple & Webster share price target here is $12.20, which offers a possible capital return of approximately 20% over this year.

The brokers are attracted to the continuing fast revenue growth that Temple & Webster is demonstrating, with long-term market share gains expected.

As the business gets bigger, it is expected to be able to benefit from greater scale as well as more private label sales.

Analysts are noticing that customers are returning and spending more when they do. In FY21, Temple & Webster said that revenue per active customer increased 12% year on year. At 30 June 2021, it had 778,000 active customers – an increase of 62%.

Temple & Webster is demonstrating both rapid growth and high customer satisfaction. It has over 5,000 reviews between its iOS and Android apps with an average rating, at the time of the FY21 result announcement, of 4.8 out of 5.

It’s also investing in a number of areas of operational capability and technology to increase its performance and service for customers. For example, it increased its investment in the artificial intelligence interior design service start-up based in Israel, after a successful pilot of the service. In the longer-term, it’s also thinking about geographic expansion.

One of the things that may be factored into the Temple & Webster share price is its long-term strategy of re-investment.

The company said:

We will continue our reinvestment strategy, investing into growth areas of the business to grow our online market leadership position with the ultimate goal of becoming the largest retailer (online and offline) for furniture and homewares in our home market.

The post Is it too late to invest in Temple & Webster (ASX:TPW) shares? appeared first on The Motley Fool Australia.

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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. owns and has recommended Temple & Webster Group Ltd. The Motley Fool Australia has recommended Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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