The Temple & Webster Group Ltd (ASX: TPW) share price just fell to a 52-week low.
At the time of writing, it is down 6%. The e-commerce business has seen a drop of 43% from the start of the year.
The ASX share market continues to suffer with growth businesses seeing a sizeable selloff since the start of 2022.
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Are interest rates the cause?
Many market commentators and analysts are talking about interest rates. Why do interest rates matter?
Legendary investor Warren Buffett gave a timeless explanation about interest rates in 1994 at the Berkshire Hathaway annual general meeting (AGM):
The value of every business, the value of a farm, the value of an apartment house, the value of any economic asset, is 100% sensitive to interest rates because all you are doing in investing is transferring some money to somebody now in exchange for what you expect the stream of money to be, to come in over a period of time, and the higher interest rates are the less that present value is going to be. So every business by its nature … its intrinsic valuation is 100% sensitive to interest rates.
Central banks could decided to increase interest rates to combat the inflation.
But only sellers of Temple & Webster shares know why they're willing to accept a price that's a lot lower than in 2021.
Is the Temple & Webster share price an opportunity?
Some of the leading analysts in Australia certainly think so.
The broker UBS thinks that Temple & Webster shares could have a 90% upside after its FY22 half-year result which showed that expenses and profit margins were solid, whilst revenue was even stronger than forecast. The price target is $11.80.
In the HY22 report, the company reported an earnings before interest, tax, depreciation and amortisation (EBITDA) margin of 5.1%, which was stronger than its guided range of between 2% to 4%. Not only are customer numbers increasing, but the revenue per active customer has grown for six straight quarters in a row. Half-year total revenue increased 46%.
Management said that its supply chain diversity is mitigating short-term disruptions, whilst allowing it to scale sustainably during the COVID-19 period. It sources directly from over 100 factories with its private label, whilst sourcing from thousands indirectly through the drop ship model.
The company also indicated that it's making good progress on the next growth horizons. 'Trade and commercial' experienced revenue growth of 49%, representing 7% of revenue. 'Home improvement' revenue jumped 95%, representing 4% of total revenue.
Management is confident that it can continue winning market share. In the second half of FY22, Temple & Webster saw revenue growth of 26% for the period of 1 January 2022 to 6 February 2022.
Temple & Webster's share price is rated as a buy by others
The brokers Morgan Stanley and Credit Suisse also think that Temple & Webster shares are a buy. They are attracted to the growing customer loyalty, the long-term growth opportunity and fast revenue growth.
Whilst Macquarie only has a rating of 'neutral' on the business at the moment, Macquarie's price target of $9.70 offers upside of more than 50% because of how far the e-commerce stock has fallen.
