A few weeks ago I outlined my thesis for investing in Temple and Webster Group Ltd (ASX: TPW) as a pandemic momentum trade — largely because the business (which sells online) would benefit from social distancing.
Today I’m going to explain my investment in Temple and Webster #ASX $TPW a little more clearly, as it gives an insight into one of the ways I generate outperformance as an investor, as well as how you can use sociology to inform your own decisions. 1/9 pic.twitter.com/5Su8yQRztu— Claude Walker (@claudedwalker) June 4, 2020
Sadly I sold my shares right before they went on to gain another 25% or so (assuming the pop again today).
Today, the company announced that its year to date EBITDA is $7.1 million. It earned $2.3m in the first half, so assuming the rest of June remains strong, I reckon you could safely model an EBITDA run rate of $10m.
Now let’s bump that up a further 20% just to be bullish and assume that it is on an EBITDA of $12m, and growing strongly.
The current enterprise value is at least $550 million, so that means the EV/ EBITDA of this online retailer is about 45. Fairly hefty by any measure.
In comparison, Kogan.com (ASX: KGN) announced it is doing “Adjusted EBITDA across 4QTDFY20 was $7.0m per month,” which would translate to $84m in EBITDA which means it is trading on a substantially lower EV/EBITDA multiple given its market capitalisation of about $1.45b.
Any way I look at it now, it feels like my Temple and Webster thesis has played out. This is definitely now a hot stock with funds falling over themselves to get on board. Once again, I have sold a hot stock so far from its share price peak, that I feel stupid, despite having made a profit.
But at the end of the day, in terms of medium term and long term positioning I still feel good about my strategy of concentrating my portfolio in the healthcare industry and in growing software companies.
When it comes to retail, I am obviously suffering some value investing issue and am in need of re-education, because I did not hold this pandemomomania trade long enough!
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