Some of the ASX’s biggest stars in 2020 were e-commerce businesses, which experienced unprecedented demand as COVID pulled forward online penetration rates.

This saw Temple & Webster Group Ltd (ASX: TPW) and Kogan.com Ltd (ASX: KGN) shares soar to lofty heights, only to slink back down as ASX online retailers lost their shine.

Let’s take a look at which of these two popular ASX e-commerce shares could be a better buy.

Compare the pair

Before I present a bull case for each company, here’s a quick summary of how these two ASX e-commerce shares stack up across some headline metrics.

As you can see, even though Kogan generates substantially more revenue, Temple & Webster’s superior gross margins mean that more dollars filter through to gross profit.

	Kogan	Temple & Webster
Market capitalisation	$380 million	$670 million
FY22 revenue	$719 million	$426 million
FY22 revenue growth	-8%	31%
FY22 gross profit	$184 million	$193 million
FY22 gross margin	26%	45%
FY22 adjusted EBITDA	$19 million	$16 million
FY22 net profit after tax	-$35 million	$12 million

The case to add Kogan shares to your cart

The simplest bull case for Kogan is that shares have been oversold. The Kogan share price has been slashed by 59% this year. It’s currently sitting at $3.55, a painful 86% lower than the all-time high of $25.10 it reached in October 2020.

In hindsight, it’s easy to see the market lapped up the COVID hype and got well and truly carried away.

But Kogan shares have fallen so far from grace that they’re now down more than 50% compared to pre-COVID levels.

This is despite the retailer bringing in $280 million more revenue and having 2.4 million more customers compared to FY19. But crucially, what hasn’t grown is the company’s bottom line.

Nonetheless, Kogan’s growth story has long been underpinned by taking a bigger slice of the pie out of a fast-growing market.

The e-commerce tailwind will likely propel the industry for years to come, all the while Kogan’s market share has plenty of room left to run.

NAB estimates that in the 12 months to June 2022, Aussies spent $55.72 billion on online retail, representing 14.5% of total retail sales.

Meanwhile, Kogan’s market share sat at just 2.7% in FY21, up from 2.4% in 2020 and 2.1% in FY19.

Temporary blip

Management took a bet that COVID-accelerated demand would be the new normal. Kogan has since candidly admitted it got it wrong, which led to widely reported inventory woes. 

Bulls will argue this was merely a blip and that the long-term growth story remains firmly intact. If not stronger than ever, supported by a growing, loyal customer base and various growth levers at the company’s disposal.

Importantly, the ASX retailer has proven its business model can be profitable and it’s shown potential for operating leverage to kick in.

The company has set an ambitious target of achieving $3 billion of gross sales in FY26, which translates to an annual growth rate of 26%. 

It’s also aiming for one million Kogan First subscribers, which would bolster customer loyalty and repeat purchases while providing a meaningful recurring revenue stream.

If the founder-led management team can deliver on these medium-term goals, without eating into margins, the business could be worth multiples of what it is today.

The case to furnish your portfolio with Temple & Webster shares

Similarly to Kogan, Temple & Webster is benefitting from the shift to online. But the tailwinds blowing at Temple & Webster’s back are arguably stiffer. 

COVID accelerated a lot of growth and saw people shopping for furniture online for the first time. Anecdotally, it’s easy to see Temple & Webster’s rise in prominence as family and friends turn to the company as a destination site for ease and convenience.

But the industry is still in the early stages of online penetration.

The Australian furniture and homewares market lags the online penetration seen in other western countries. In 2021, online penetration was in the range of 15-17% in Australia. But in the UK and US, penetration rates were above 25%.

As we play catch up and more of the market moves online, Temple & Webster, as the largest online player in Australia, is in a prime position to pounce.

In FY22, its market share of the total furniture and homewares market in Australia sat at just 2.3%. That leaves a long runway for growth, especially as the company aims to increase its brand awareness from 61% to 80%.

What else is there to like?

Operationally, Temple & Webster also has a myriad of factors working in its favour.

Importantly, it’s won over consumers, boasting swarms of positive reviews on websites like Trustpilot with ratings higher than its competitors.

The company is known for its expansive range, offering more than 240,000 products from 500 suppliers across 210 categories.

This is made possible by a diverse and reliable supply chain and distribution network. 

Unlike Kogan, Temple & Webster utilises a drop-shipping model for third-party products so it’s largely shielded from inventory risk.

This means that instead of buying all of the products upfront, paying money to store them in warehouses, and dispatching them when a customer makes an order, this is all handled by third parties. Plus, it means that Temple & Webster doesn’t carry the risk of products not being sold.

In FY22, 73% of the company’s sales went through the drop-shipping network. The remaining 27% were higher-margin private label products, where Temple & Webster takes on the inventory risk and fulfils distribution duties.

Operating in the furniture space also comes with advantages over other retail categories. Furniture is a higher margin category compared to, say, consumer electronics and appliances. 

And most of the category is sold under the retailer’s brand rather than the supplier’s. This allows for more catalogue differentiation and means there’s more opportunity for higher-margin initiatives, such as private label products. 

Looking ahead, the company has been ploughing money back into the business to invest in its digital capabilities and expand into new verticals, such as home improvement and trade and commercial.

Prudently, the company recently heightened its focus on profitability, upgrading its FY23 EBITDA margins to 3-5%.

Better ASX e-commerce buy

Both Kogan and Temple & Webster are benefitting from the structural shift to e-commerce.

But for me, it’s hard to go past the number one player in a more targeted industry growing at a faster clip. And that player is Temple & Webster.

The current environment will likely continue to be volatile as we battle soaring inflation, rising interest rates, and a precarious housing market.

But taking a long-term view, I’m confident that a sizeable portion of the furniture and homewares market will be online. 

And I believe Temple & Webster is in a strong position to capitalise on its first-mover advantage and gobble up more share of what is already a very big addressable market.

The post ASX better buy: Temple & Webster or Kogan shares? appeared first on The Motley Fool Australia.

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More reading

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• Why Credit Corp, Endeavour, Kogan, and Service Stream shares are dropping
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Motley Fool contributor Cathryn Goh 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 Kogan.com ltd and Temple & Webster Group Ltd. The Motley Fool Australia has positions in and has recommended Kogan.com 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 Scott Phillips.

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The A2 Milk Company Ltd (ASX: A2M) share price is having a nice run of late, up almost 17% over the past fortnight.

Shares of the baby formula company closed Thursday’s session at $5.58 each after fetching $4.79 a share two weeks ago.

A2 Milk is also far outperforming the S&P/ASX 200 Consumer Staples Index (ASX: XSJ). It’s down 0.63% over the same timeframe.

Certainly, the company has posted some significant announcements recently. Let’s have a closer look.

Buying back shares

In its better-than-expected FY22 results, A2 Milk announced it would initiate a $135 million on-market share buyback program.

Share buybacks can sometimes be seen as a signal the company believes its shares are undervalued.

No doubt helping the decision was the significant amount of cash on the company’s balance sheet — $816.5 million.

Positive FY22 results

A2 Milk was upbeat about its FY22 earnings, with the company noting that its top and bottom lines increased significantly.

Net profit after tax (NPAT) surged 42.3% to $103 million, while revenue climbed 19.8% to $1.29 billion.

The company also gave delivered positive outlook for FY23, saying it expects increased demand for its products in China.

Bullish price target from broker

Bell Potter analysts published a note, upgrading A2Milk to a buy rating with a price target of $6.35. That’s an appreciable 13.8% upside on the current share price.

Bell Potter is bullish on the company after it beat its analysts’ forecasts for FY22.

The broker said:

We upgrade our rating from Hold to Buy. If A2M can execute on its strategy to achieve ~NZ$2Bn in FY26e revenues and EBITDA margins in the teens, then it would imply compound double digit EPS growth through to FY26e. Exiting the US, transitioning MVM towards nutritionals or execution of buybacks could accelerate this growth trajectory. Recent easing in dairy (notably SMP) and vegetable oil ingredient forward rates also imply the scope for favourable COGS movements in FY24e.

A2 Milk share price snapshot

A2 Milk’s share price is up 2.2% year to date. It’s fared better than the S&P/ASX 200 Index (ASX: XJO) which has lost 8% over the same period.

The company’s market capitalisation is currently around $4.15 billion.

The post Why has the A2 Milk share price leapt 17% in a fortnight? appeared first on The Motley Fool Australia.

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More reading

• Why is A2 Milk buying back shares?
• Here are the top 10 ASX 200 shares today
• Why did the A2 Milk share price smash the market with a 22% gain in August?
• How do A2 Milk shares stack up against Bubs post-earnings season?
• Here are the top 10 ASX 200 shares today

Motley Fool contributor Matthew Farley has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. 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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Looking for growth shares to buy? Well, I have good news for you. Listed below are two ASX growth shares that are rated as buys by analysts with major upside potential.

Here’s what you need to know about them:

Life360 Inc (ASX: 360)

The first ASX growth share that has been tipped as a buy is Life360.

It operates in the digital consumer subscription services market, with a focus on products and services for digitally native families. The company’s key product is the incredibly popular Life360 app, which has 40 million+ active users. It offers families features such as communications, driver safety, and location sharing.

Unfortunately, due to operating at a loss, the market has ignored its stellar growth and sold off its shares during the last 12 months. However, the good news is that the team at Bell Potter believe that its cash balance is sufficient to see it through to breakeven.

In light of this, the broker sees the weakness as a buying opportunity for long term and patient investors. Its analysts have a buy rating and $8.25 price target on its shares, which implies potential upside of 45% based on the current Life360 share price.

NextDC Ltd (ASX: NXT)

Another ASX growth share that has been named as a buy is data centre operator NextDC.

As with Life360, NextDC continued its strong growth in FY 2022. This was driven by increasing demand for space in its data centres thanks to the ongoing structural shift to the cloud.

Goldman Sachs believes the company is well-placed to continue this growth for some time to come.  It has previously highlighted NextDC’s “compelling growth profile”, a proven and profitable business model, and digital infrastructure characteristics.

Goldman currently has a buy rating and $14.20 price target on its shares. Based on the current NextDC share price of $9.75, this suggests potential upside of 45%.

The post 2 ASX growth shares that analysts say have 40%+ upside appeared first on The Motley Fool Australia.

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• Here are the top 10 ASX 200 shares today
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• Fundie reveals the 2 ASX shares he’d buy and hold for 4 years
• Morgans names 3 more of the best ASX shares to buy in September

Motley Fool contributor James Mickleboro has positions in Life360, Inc. and NEXTDC Limited. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Life360, Inc. The Motley Fool Australia has no position in any of the stocks mentioned. 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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The Betmakers Technology Group Ltd (ASX: BET) share price climbed with the market on Thursday.

The betting technology company’s shares rose 1.2% to 42.5 cents.

Though, this makes little difference to its year to date performance. The Betmakers share price is still down almost 50% during this time.

As one of the most shorted shares on the Australian share market, short sellers will certainly be pleased with this.

Is the Betmakers share price a buy?

A couple of analysts have been weighing on the Betmakers share price. The good news for shareholders is that they are positive on the company and believe investors should be buying its shares despite the high level of short interest.

Ben Clark from TMS Capital told Livewire that he is feeling positive on the company due to a strong update from one of its peers and its huge opportunity in the United States. He said:

I think this might be a buy. We’ve just seen a really bullish update from Flutter in the UK, which is the world’s largest sports betting company. What prompted that was that the US sports betting market, which we know has been legalising and opening up, looks like it’s now hit a tipping point. It’s got at least a decade’s growth to go. There was a bit of a scramble amongst the players before we saw these reactions in the market, and I wouldn’t be surprised to see that coming through again. Betmakers are profitable. It doesn’t trade on a crazy PE for a fast-growing small-cap tech stock. So I’d go buy.

This sentiment was echoed by Henry Jennings from Marcus Today, who highlights the company’s attractive position as a platform provider. He commented:

I think this one’s a buy. I think it has got a good pedigree, as Ben says, in terms of the management, Matthew Tripp. Also, Tom Waterhouse is involved as well, so that’s pretty good pedigree there. As Ben says, the US has reached a tipping point on sports betting, and there’s been a lot of money spent on land grabs and everyone trying to get their share of the market. The good thing about Betmakers is it’s kind of agnostic. It’s the platform, the picks-and-shovels, which has worked for many people in the past.

The post Here’s what analysts are saying about the Betmakers share price appeared first on The Motley Fool Australia.

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More reading

• These are the 10 most shorted ASX shares
• These are the 10 most shorted ASX shares
• BetMakers share price pops then drops as full-year revenue leaps 370%
• These are the 10 most shorted ASX shares
• Betmakers share price slips despite new $20 million deal

Motley Fool contributor James Mickleboro 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 Betmakers Technology Group Ltd. The Motley Fool Australia has recommended Betmakers Technology Group Ltd. 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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