3 reasons why the Temple & Webster (ASX:TPW) share price could be a buy

There are a few good reasons why the Temple & Webster Group Ltd (ASX:TPW) share price could be a buy right now.

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The Temple & Webster Group Ltd (ASX: TPW) share price could be an opportunity to look at right now. 

Temple & Webster has seen its shares climb by 187% over the last year. It may not be able to do the same thing over the next 12 months, but the retailer may still be a really good ASX share to think about for the coming years.

Why? These factors could make it a good investment today:

Benefiting from multiple trends

Temple & Webster is an e-commerce retail business. It's benefiting from the large increase of customers who are buying things online. Some customers are buying furniture and homewares for the first time online, whilst others might be buying more frequently online.

There's also the household finances situation that are helping the ASX share. Government stimulus has helped the overall picture. Households have been saving more than normal.  Spending for some people may be redirected from holidays to their homes.

Temple & Webster estimates that more than 20% of furniture and homewares were bought online in the US during 2020. Management believe that Australia is following the same trajectory. It estimates that in 2020, around 9% of Australian furniture and homewares were bought online – almost double the percentage of 2019. Online penetration in both markets is expected to continue to increase significantly.

The company thinks COVID-19 has permanently accelerated online adoption in the Australian furniture and homewares market.

Investing for growth

Over the longer-term, growth shares have the ability to deliver stronger long-term returns because of the compound growth rate.

Management believe there is scope for significant online growth. It's planning to invest heavily in a number of areas to capitalise on this opportunity.

It's going to spend on marketing to build strong brand awareness to achieve national brand status within the next three years. This should drive both first-time and repeat customers.

Temple & Webster aims to increase its conversion with tactical pricing and promotions.

The company will continue to invest in the customer experience with enhanced technology, data and personalisation and delivery experience.

Investing into 3D and artificial intelligence capabilities to make the customer shopping journey easier is another area.

It's planning to improve and differentiate its range with new category additions, private label expansion, new product development and exclusive ranges with suppliers.

The final strategy of the company is to grow business to business sales, with bigger operational teams to capitalise on the return of demand in the commercial sector.

Temple & Webster's choice to invest across all of these areas will result in a low earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 2% to 4%. It wants stay profitable though. Management are hoping for strong double digit revenue growth.

After that, the company is expecting higher profit margins with scale benefits.

Recent sell-off

The Temple & Webster share price is currently down 10% in just a week. It's also down 27% since 25 January 2021. The entry point of an investment plays a key role in dictating the returns for an investor.

This lower price could be an opportunistic time to think about Temple & Webster shares after some investors decided to sell.

The long-term focus on growth could lead to stronger returns over the coming years if it's able to keep capturing market share.

Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of 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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