XRO share price in focus
Xero was founded in 2006 in Wellington, New Zealand, by Rod Drury, who led the company until 2018. Employing more than 3,000 people, Xero helps millions of subscribers manage their accounting and tax obligations across the globe.
The cloud-based “beautiful accounting software” developed by Xero is primarily for accountants and bookkeepers to better service their small business customers.
Through Xero, small business owners and their advisors/accountants have access to real-time financial data and on any device. Xero provides its core cloud accounting software to customers in New Zealand, Australia, the UK and, to a lesser extent, the USA.
While it may be large, Xero Ltd is a growth stock, and so it requires a different set of rules and may not be straightforward to value at times. Studies have shown that over 5-10+ years, it’s top-line revenue growth which explains a stock’s performance. That’s why it’s good to see Xero Ltd is able to grow revenue at 26.4%, a strong clip.
WOW shares
Founded in 1924, Woolworths is a retail operator in Australia and New Zealand with over 3,000 stores and over 100,000 employees. It is one of Australia’s largest companies in terms of revenue and market share.
Woolworths’ main operations include supermarkets (under the Woolworths brand in Australia and Countdown in New Zealand), retailing through its discount department stores under the Big W brand, and business-to-business (B2B) brands like PFD. However, its 35%+ market share of Australian groceries is undoubtedly its crown jewel.
Woolworths is a very popular choice for many ASX investors seeking dividend income. Historically, it has consistently paid a fully franked dividend, usually at a yield of over 3%, and offers a very defensive earnings stream with most revenue coming from consumer staples. Its competitive advantage is best summarised as scale (distribution, low costs, etc.) and proximity (most shoppers still shop based on distance to the supermarket).
XRO share price valuation
As a growth company, one way to put a general prediction on the XRO share price could be to compare its price-to-sales multiple over time. Currently, Xero Ltd shares have a price-sales ratio of 14.59x, compared to its 5-year average of 13.37x, meaning its shares are trading higher than their historical average. Please keep in mind that context is important – and this is just one valuation technique. Investment decisions can’t just be based on one metric.
Since it is a more of a ‘blue chip’ company, we could look at the dividend yield of WOW to determine its value. WOW is offering a historical dividend yield of around 4.12%, which compares to its 5-year average of 2.96%. The Rask websites offer free online investing courses, created by analysts explaining things like Discounted Cash Flow (DCF) and Dividend Discount Models (DDM). They even include free valuation spreadsheets. Both of these models would be a better way to value the WOW share price.
