In late morning trade the S&P/ASX 200 Index (ASX: XJO) has followed the lead of U.S. markets and is pushing higher. At the time of writing the benchmark index is up 0.1% to 6,128.2 points.

Four shares climbing more than most today are listed below. Here’s why they are charging higher:

The A2 Milk Company Ltd (ASX: A2M) share price is up 1.5% to $18.42. This follows the release of an announcement by the infant formula company this morning. That announcement reveals that it has made a non-binding indicative offer to acquire a 75.1% interest in Mataura Valley Milk for NZ$270 million. Mataura Valley Milk is a New Zealand based dairy nutrition business. If everything goes to plan, A2 Milk will look to establish blending and canning capacity at Mataura’s facility in the future.

The Coca-Cola Amatil Ltd (ASX: CCL) share price has climbed 3.5% to $9.61. This morning analysts at Credit Suisse upgraded the beverage giant’s shares to an outperform rating with an improved price target of $11.25. It made the move after the release of a better than expected half year result earlier this week.

The Star Entertainment Group Ltd (ASX: SGR) share price has jumped 9% to $3.20. This also appears to have been driven by a broker note out of Credit Suisse this morning. The broker has upgraded the casino and resorts operator’s shares to an outperform rating with a $3.60 price target. It was pleased with its good cost control. This has led to its analysts upgrading their earnings estimates.

The Suncorp Group Ltd (ASX: SUN) share price has surged 7.5% higher to $9.35. Investors have been buying the insurance and banking giant’s shares following the release of its FY 2020 results. Suncorp’s cash earnings came in at $749 million in FY 2020, down 32.8% on the prior corresponding period. The market appears to have been expecting a much softer result.

More reading

• Suncorp share price in focus after posting 32.8% cash earnings decline
• a2 Milk share price on watch after announcing Mataura Valley Milk acquisition plans
• Where to invest $10,000 into ASX shares immediately
• 5 things to watch on the ASX 200 on Friday
• Top brokers name 3 ASX shares to sell today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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Shares in PWR Holdings Ltd (ASX: PWH) have lost 3.23% in early trade, despite the company  reporting relatively steady results for FY20. At the time of writing, the PWR share price had fallen to $4.50 after closing yesterday’s session at $4.65.

How did PWR perform in FY20?

Earlier today, PWR released its financial report for the year ended 30 June 2020.  

The report was headlined by an 8.1% increase in net profit after tax of $13.1 million for FY20. Additional highlights included a 7.4% lift in earnings before interest, taxes, depreciation and amortisation (EBITDA) of $23.37 million and 9.3% surge in operating cash flow of $20.32 million. PWR reported relatively flat revenue of $65.73 million for FY20.

PWR labelled its performance in FY20 as relatively steady given the economic repercussions of the COVID-19 pandemic. The company’s performance was fuelled by a strong first half, with operations in the second half thrown into turmoil as a result of the pandemic.

In response to the COVID-19 pandemic, PWR reduced staff working days. As a result, the company utilised the JobKeeper program in Australia and Pay Check Protection in the United States. PWR noted that these programs provided $1.74 million and $1.77 million in wage and overhead relief respectively.

According to PWR, the stable result reflects the company’s diversified revenue streams with growth of over 100% in emerging technologies and OEM customers. The company also noted that favourable currency exchange rates resulted in revenue for FY20 being slightly higher than FY19 despite the pandemic.

In addition, PWR’s management assured shareholders that the company has a strong balance sheet boasting more than $20 million cash on hand. As a result, PWR declared a final, fully franked dividend for FY20 of 4 cents per share, a 42% increase from last year.  

What is the outlook for PWR?

PWR designs and manufactures high performance cooling systems for the automotive and aerospace industries. This includes the production of aluminium radiators, intercoolers and oil coolers for elite motorsport teams that participate in Formula One, NASCAR, V8 Supercars, DTM and IndyCar.

Despite the interruption, PWR maintains that the company is still on track for its business and investment growth plan. With the resumption of motorsport around the world the company is optimistic on its outlook.

PWR acknowledged continued investment in revenue diversification and highlighted the benefits of dual manufacturing sites in the US and Australia.

About the PWR share price

Despite the relatively steady result, the PWR share price dipped nearly 6% to $4.38 before recovering somewhat. At the time of writing, the PWR share price is trading at $4.50, more than 3% lower for the day. The PWR share price has rallied 73% from its March low but remains 4.46% lower for 2020.

More reading

• 265,000 investing ‘virgins’ joined the share market during COVID-19
• Why a2 Milk, Coca-Cola Amatil, Star, & Suncorp shares are charging higher
• BWX share price leaps 8% on strong FY20 results
• Opthea share price surges higher on FDA news
• Fortescue share price higher after mineral resource upgrade

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has recommended PWR HLDING FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 BWX Limited (ASX: BWX) share price soared by more than 8% in early trade before pulling back to $4.41 per share, following the release of the company’s full-year results for the period ending 30 June 2020 (FY20).

How did BWX perform in FY20?

A leading owner and wholesale distributor of branded skin and haircare products, BWX’s brand portfolio consists of Andalou Naturals, Mineral Fusion, Nourished Life and Sukin – the number one organic skincare brand in Australia and the company’s largest revenue generator.

Key highlights from BWX’s FY20 report include:

• Net profit after tax of $15.2 million, up 59%
• Revenue of $187.7 million, up 25.5%
• Underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) of $27.5 million, up 30%
• Forecast for FY21 underlying EBITDA of $30.25 million
• Sukin sales revenue of $81.7 million, up 55%
• Underlying earnings per share of 12.3 cents, compared to 8.9 cents in FY19

The company reported a strong balance sheet, with operating cash flow of $28 million, and bank debt obligations of $60.6 million and deferred payment on acquisition of $9.7 million.

BWX declared a fully franked final dividend of 2.6 cents per share for FY20, which is within the company’s dividend payout guidance of 35–50%.

Revenue in the company’s Australia Pacific market increased by 43% on the prior corresponding period, and the North America region increased by 7%. The acceleration of online shopping has supported growth through BWX’s direct-to-consumer model.

All segments of BWX’s core brands continued to increase market share in FY20. The company reports that Sukin remains the number 1 natural skincare brand in Australia. Sukin accounted for half of the net revenue from the company’s entire portfolio range.

COVID-19 impact

BWX advised it has strengthened its balance sheet in response to the uncertainty of COVID-19. The company has diversified its supply chain for raw materials and components to adjust to increased consumer demand.

The company recently launched a natural hand sanitiser, which has become a core staple for consumers. BWX has been accelerating its direct-to-consumer model to capture future growth due to the behavioural shift around health and hygiene.

Sales and operations planning systems have been assisting decision makers with reliable rolling forecasts. Cost and inventory management have been tightly controlled to minimise product oversupply and material wastage.

Outlook

While management will continue to closely monitor external market conditions, the group anticipates further market share growth. Essential services such as pharmacies and supermarkets are expected to underpin sales through BWX’s expanded product offering.

Long term, the company is targeting a $50 million supermarket skincare business in Australia, a $100 million conventional skincare business in the US, and is working towards $30–$50 million in revenue from its European operations by 2023.

Additionally, BWX’s new operation facility and support office is due for completion by 1H FY22. It is forecasted to provide an earnings uplift to the business in FY23.

BWX is aiming to achieve growth in revenue and EBITDA of at least 10% in FY21.

At the time of writing, the BWX share price has given up some of its early gains, currently up 3.48% to $4.41 per share.

More reading

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended BWX Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 Opthea Ltd (ASX: OPT) share price is surging higher today. This follows the release of an update on its meetings with the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA).

At the time of writing the clinical-stage biopharmaceutical company’s shares are up over 5% to $2.45.

What happened at the Opthea-FDA meeting?

Opthea, which is developing a novel therapy to treat highly prevalent and progressive retinal diseases, has successfully completed its end-of-phase 2 meetings with the FDA and also a scientific advice meeting with the EMA.

These meetings have been undertaken to receive guidance on the phase 3 clinical development plans of OPT-302 as a treatment for neovascular (wet) age-related macular degeneration (AMD).

According to the release, the outcome of the meetings supports the progression of OPT-302 into Phase 3 and pre-commercial development, with the company aiming to initiate phase 3 trials in early 2021.

What now?

Management advised that the meeting covered key elements of the phase 3 clinical studies and associated manufacturing processes for OPT-302 that will support the submission of a Biologics License Application in the US and Marketing Authorisation Application in Europe for the targeted wet AMD indication.

Both the FDA and EMA agreed on key aspects of the proposed phase 3 clinical trial designs. This includes the conduct of two concurrent, global, multi-centre, randomised, sham-controlled studies evaluating OPT-302 in combination with ranibizumab (Lucentis).

If successful, the investigation of OPT-302 (in combination with two approved standard of care VEGF-A inhibitors) could enable it to be administered with either Eylea or Lucentis.

This could be very lucrative for Opthea given that these two products had combined sales for retinal diseases of US$11.9 billion in 2019.

Furthermore, each trial will compare the clinical efficacy of OPT-302 administered in combination with a VEGF-A inhibitor on an every 4-week and every 8-week dosing regimen in order to understand the durability of OPT-302 treatment effect with less frequent dosing.

Clear direction.

Opthea’s Chief Executive Officer, Dr Megan Baldwin, commented: “We are very pleased with the valuable guidance received from the FDA and EMA which provides clear direction as we advance our Phase 3 registration program towards bringing OPT-302 to market.”

“We remain focused on further demonstrating, in our Phase 3 program, the potential of OPT-302 combination therapy as a novel and transformative treatment for wet AMD patients suffering vision loss,” she added.

More reading

• Why Opthea shares could offer big growth potential
• Why the Opthea share price surged more than 20% today

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 Fortescue Metals Group Limited (ASX: FMG) share price is pushing higher on Friday after providing an update.

At the time of writing the iron ore producer’s shares are up 0.5% to $17.95.

This means the Fortescue share price is now up over 66% since the start of the year.

What did Fortescue announce?

This morning Fortescue released a mineral resources statement for its development properties. These comprise its Greater Chichester Hub, Greater Solomon Hub, Greater Western Hub, Nyidinghu, and other Pilbara developments.

According to the release, the total development mineral resources has increased by almost 2% over the last 12 months from 7,907 million tonnes (mt) to 8,060 mt.

The main driver of this increase was the Greater Solomon Hub, which has increased its mineral resource by 102 mt to 2,682 mt. This follows updates to its Sheila Valley and Raven deposits.

Also increasing was the Greater Western Hub mineral resource. It has increased by 39 mt to 2,086 mt following updates to the Flying Fish, Cobra, Lora, and Wyloo North deposits. At Cobra, 99mt of the mineral resource is now classified as indicated.

Fortescue’s Nyidinghu mineral resources has been updated with an overall increase of 12mt to 2,475mt. Management notes that the additional tonnes include high grade bedded iron deposits in the Brockman and Marra Mamba Iron Formations, along with channel iron deposits and detrital iron deposits.

Fortescue’s chief executive officer, Elizabeth Gaines, was pleased with the mineral resources update.

She commented: “It is pleasing to see the continued growth in Mineral Resources at our Development Properties. With the increase in Mineral Resources at the Greater Solomon Hub, Greater Western Hub and Nyidinghu, our total Development Mineral Resources now exceeds eight billion tonnes.”

With 8 billion of mineral resources under development, Fortescue certainly has a long runway for growth over the next decade and beyond.

More reading

• Is now a good time to buy Fortescue shares?
• Why Fortescue’s share price has surged 72% in 2020
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• 5 things to watch on the ASX 200 on Monday
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

If you purchased Amazon (NASDAQ: AMZN) on Jan. 1, you’d be up a sizzling 78% today. That’s a $7,800 profit on a $10,000 investment — not too shabby for nine months’ worth of investing in the stock market. 

But if you’d invested in Amazon while the stock market was crashing in March, you’d have even more.

Amazon’s stock held up relatively well during the early stages of the COVID-19 crisis. Investors realized that e-commerce companies would benefit as many traditional retail stores were forced to close due to stay-at-home directives. Still, by March 16, Amazon’s stock price had fallen about 9% from where it started the year as the market sold off. 

If you had used this opportunity to buy Amazon’s shares at a discount, you’d be up a staggering 95% today. Said differently, you would have nearly doubled your money, and your $10,000 investment would now be worth $19,500. 

The takeaway here isn’t to try and time the market perfectly and nab shares of your favorite company at the absolute bottom. That’s a nearly impossible endeavor, even for the best investors.

The more important lesson is to recognize the power of using market sell-offs to amplify your gains. Stock market declines will often give you the opportunity to purchase shares of outstanding businesses at better prices than you’d otherwise be able to. If you can keep some cash aside to invest during these market crashes, you’ll likely boost your returns significantly over time.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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• Stock split watch: Could Amazon be next?

Joe Tenebruso has no position in any of the stocks mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and recommends Amazon and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool Australia has recommended Amazon. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The continuation of many sports leagues around the world could make Pointsbet Holdings Ltd (ASX: PBH) a compelling ASX growth share to buy in August.

The company has recorded strong growth in the domestic Australian market while securing key partnerships and licenses in the significant US market – amid the coronavirus pandemic. I think its potential revenue growth and strong cash position could make it a top ASX growth share to buy.. 

It’s a strong stand-alone business

In the company’s Q4 FY20 business update, Pointsbet Australia delivered quarter-on-quarter net win growth of 109%. This marks its second consecutive quarter of positive EBITDA.

Its quarter-on-quarter net win margin pushed higher due to favourable results and customer’s transfer from sports to racing. This, combined with the timing and execution of its tier 1 Channel 7 Australian horse racing partnership and Fox Sports AFL, were big drivers of growth this quarter.

I believe Pointsbet Australia is shaping up to be a strong stand-alone business that will enable the company to focus its resources on the prime US opportunity. 

Building US market amid COVID-19 

The US market saw a 12.9% decrease in turnover due to all 4 major US sporting leagues (baseball, basketball, football and hockey) being absent for Q4 FY20. Despite a challenging financial performance, the company has achieved a number of key partnerships and licenses. 

On 31 July, the company announced that its partner, Hawthorne Race Course, has been issued a Master Sports Wagering Licence by the Illinois Gaming Board. These approvals will allow Pointsbet to start retail and online sports betting operations in Illinois. 

On 5 August, Pointsbet entered into a multi-year agreement to become an Official Sports Gaming Partner of the Indiana Pacers of the NBA. The next day, the company entered into a ‘primary skin’ agreement with the Twin River Management Group to provide online iGaming/online casinos in the State of New Jersey. This could see Pointsbet providing table game, slot content and Live Dealer casino solutions. 

I believe these partnerships and regulatory approvals serve as a springboard for its growth when sporting markets pick up.

Foolish Takeaway

Pointsbet is in a strong position to pounce at the formidable US growth opportunity. The company is well-capitalised with A$135.4m of corporate cash as at 30 June and no debt. Forthcoming launches of sportsbook operations in Illinois, Colorado and Michigan combined with the re-launch of big 4 US sports in Q1 FY21 should see an improved performance moving forward.

While Pointsbet is a higher risk/reward investment opportunity, I think its strong cash position and foothold in the US market makes it a strong ASX growth share to watch. 

 

More reading

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• Pointsbet share price on watch after ANOTHER new partnership
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• PointsBet share price jumps 4% on new US deal

Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Pointsbet Holdings Ltd. The Motley Fool Australia has recommended Pointsbet Holdings Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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 TPG Telecom Ltd (ASX: TPG) share price is pushing higher following the release of its half year results.

At the time of writing the telco’s shares are up 1% to $7.37.

What did TPG Telecom announce?

To begin with, it is worth noting that these results are a predominantly going to reflect the performance of the Vodafone Australia business during the six months ended 30 June 2020.

This is because the merger between TPG and Vodafone Australia only became effective for accounting purposes on 26 June. Which, despite the company name, means its statutory income includes a full six months from Vodafone Australia but only four days from the TPG business.

It is also worth noting that significant pre-merger implementation restructuring steps occurred between 2 July 2020 and 13 July 2020. As a result, its balance sheet on 30 June was not fully reflective of its balance sheet after the merger was implemented.

What were its results?

During the first half of FY 2020, the company’s reported earnings before interest, tax, depreciation and amortisation (EBITDA) was $531 million. This includes an EBITDA contribution of $9 million from the TPG business and $24 million of merger transaction costs.

On a like for like basis, excluding the TPG contribution and merger costs, underlying EBITDA was down 8% on the prior corresponding period to $546 million.

On the bottom line, the company’s reported net profit after tax was $83 million. This includes a $226 million one-off, non-cash credit to its tax expense.

Excluding this, the effect of the merger transaction costs, and TPG’s contribution, the company’s underlying net loss after tax was $117 million. This is a $27 million improvement relative to the prior corresponding period.

What if the merger had completed on January 1?

To give investors an idea of what this half year result would look like if it had a full contribution from the TPG business, the company provided a pro forma result.

Pro forma revenue was $2,712 million for the half, comprising TPG revenue of $1,248 million and Vodafone revenue of $1,513 million.

Whereas pro forma EBITDA would have been $918 million. This comprises TPG EBITDA of $391 million and Vodafone EBITDA of $545 million. Pro forma EBITDA (pre AASB16) would have been $836 million.

COVID-19 impacts.

As with rival Telstra Corporation Ltd (ASX: TLS), there have been some negative impacts on its performance because of the COVID-19 pandemic.

Management revealed that global travel restrictions have had a significant impact on revenue and EBITDA, causing a ~80% reduction in roaming margin, ~30% decline in prepaid connections, and ~20% decrease in post-paid connections.

In addition to this, the company’s ability to connect new customers was impacted during March and April when call centre capacity was temporarily reduced due to local lockdown restrictions in India. And while operations have now returned almost to full capacity, higher costs are being incurred due to changes in service delivery. I

t was a similar story for its retail store network. With about one third of retail stores temporarily closed between April and June, its sales were impacted negatively.

The company also offered financial support to its customers with a temporary $10 ‘Stay Connected’ financial hardship plan during April and May. Combined with extra data and free national calls, TPG Telecom’s mobile average revenue per user (ARPU) was negatively impacted.

Outlook.

No guidance was given for the full year. Though, it advised that it will continue to prioritise activities to realise merger synergies, while responding to the ongoing COVID pandemic. 

Management also advised that demand for fixed line services is expected to remain strong. However, it expects continued challenging conditions in mobile while global travel restrictions remain in place.

More reading

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

Might Johnson & Johnson (NYSE: JNJ) soon vault to the top of the coronavirus stock list?

It’s conceivable, as an entry on the government’s list of clinical trials reveals that the company’s Janssen Vaccines subsidiary is about to launch a relatively large-scale, phase 3 study of its Ad26.COV2-S vaccine candidate. The estimated start date is 5 September, with both the primary and completion date anticipated for 10 March 2023.

All told, the Johnson & Johnson/Janssen study aims to involve roughly 60,000 participants with moderate to severe COVID-19, aged 18 and older. It will be a randomised, double-blind, and placebo-controlled trial.

That 60,000 figure is double the typical late-stage participant number; front-runners Moderna Inc, with its mRNA-1273 candidate, and Pfizer and BioNTech with BNT162b2 have both targeted approximately, or at most, 30,000 patients in their respective trials.

Although other biotechs and pharmaceutical companies are in more advanced testing stages of their coronavirus vaccine candidates, Johnson & Johnson has a particular advantage that might ultimately pull it ahead of the pack.

In preclinical testing on primates, Ad26.COV2-S produced high levels of antibodies to combat infection with only a single dose; other vaccine candidates further along in their development require two doses to produce a similar response.

The coronavirus ‘race’ is one of the most closely watched developments in the healthcare world just now. The outbreak is still very much a threat to global health, and no vaccine has yet been approved for use by any major regulator.

In late afternoon trading on Thursday, Johnson & Johnson’s stock was up by 0.6%, outpacing the 0.4% rise of the S&P 500 Index.

This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

More reading

• This could be the ace in the hole for Johnson & Johnson’s COVID-19 vaccine
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. recommends Johnson & Johnson. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.

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The Redbubble Ltd (ASX: RBL) share price may be poised to hit another record high this morning after it posted a solid profit result.

The RBL share price more than tripled in value since the start of calendar 2020 and closed at $3.55 yesterday when the S&P/ASX 200 Index (Index:^AXJO) lost 8% of its value.

The online market place for artists is benefitting from two COVID-19 tailwinds. The acceleration towards online transactions in this new socially distanced world and surging demand for fashionable facemasks.

Big jump in sales and bigger jump in earnings

These trends triggered a 36% jump in its Marketplace revenue to $349 million while operating earnings before interest, tax, depreciation and amortisation (EBITDA) surged 141% to $15.3 million.

The generally weaker Australian dollar is also giving the group a boost. In constant currency terms, revenue was up a more modest 29% as EBITDA improved 123%.

Ballooning margins is the real share price kicker

What’s maybe more exciting is that profit margins for the group is expanding rapidly. This is likely due to operating leverage, and tech platforms typically have lots of that.

As a large proportion of costs are fixed (such as investment in IT infrastructure), any rise in revenue will have a bigger impact on earnings.

A scalable business like Redbubble should have little trouble maintaining its margin growth trend as long as it can keep growing sales.

Not all companies benefitting from the COVID chaos can claim stronger margins. Woolworths Group Ltd (ASX: WOW) is one example as panic buying led to a sales surge but an increase in costs.

Strong start but cloudy outlook

On that front, management said FY21 kicked off to a strong start with Marketplace revenue (measured on paid basis) jumping 132% in July over the same month last year. Sales in the first two weeks of August grew at a similar pace too.

However, the company declined to offer any sort of guidance, which isn’t surprising given the unpredictable COVID-19 situation.

Another possible negative is the recent bounce in the Australian dollar. Currency experts believe the Aussie battler is likely to make further gains over the next 12 months or so. This is due to the resilient iron ore price and the general expected weakness in the US dollar.

Business expansion and cash flow

During the last financial year, Redbubble expanded its fulfilment network to Europe, Canada and the United States. It now operates across 10 countries with 37 fulfillers in 41 locations.

There was also a 51% increase in the number of selling artists to 511,000 and a 30% rise in unique customers to 6.8 million on its Marketplace platform.

Shareholders will also be pleased that its free cash flow turned to a positive $38 million. This compares to an outflow of $200,000 in FY19.

Just don’t expect a dividend anytime soon, although this shouldn’t be a problem as investors don’t buy tech stocks for income but for growth.

More reading

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• Why these Charter Hall REITs are outperforming in FY20
• 5 things to watch on the ASX 200 on Friday
• ASX 200 down 0.8%, IDP Education soars
• The latest ASX 200 stocks hit by broker downgrades

Motley Fool contributor Brendon Lau owns shares of Woolworths Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia owns shares of Woolworths Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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